This is not a case assignment. You must create a figure with made-up prices, atr

Question

This is not a case assignment. You must create a figure with made-up prices, atrificial market share, and complete WTP calculations for Q1. True values are NOT required.

Part 1. Assuming the consumer willingness-to-pay is uniform for bottled water, depict the price response functions for bottled water before the Flint water crisis and at the end of 2015 in the same figure. You may assume that the market size at the end of 2015 is larger for bottled water (as it should be the case). Moreover, you should indicate the retail prices for bottled water in the same figure. True values are not required. When creating the figure, values and prices must be labeled or indicated.

Part 2. Consumer surplus is an important measure of effectiveness of a pricing policy on consumer welfare, which is particularly indespensible for markets in crisis. Using the figure in part 1, identify three key areas contributing to the increase in consumer surplus and explain the key drivers corresponding to each of these areas.

Part 3. After January 2016, as a result of donations, the consumers could also get bottled water from donation/emergency centers. Explain if/how canabalization happens. Explain if/how arbitrage happens.

Part 4. According to local store managers, the retailers had not offered any price incentives such as quantity discounts to donors during the donation period. However, one may argue that offering discounted prices to donors could have helped struggling Flint residents indirectly and that would have been an ethical pricing strategy during the water crisis. Please discuss your thoughts on this pricing strategy in general, and explain why retailers may not be able to sustain such a humanitarian pricing strategy.

Discussion Questions (i) The demand for bottled water had doubled by the end of 2015. Two main drivers of this increase in demand are the reduction in price and the increase in consumer willingness to pay. Briefly discuss the other potential drivers of this increase in demand. (i) Assuming that the consumer willinguess to pay is uniform for bottled water, depicts price response functions for bottled water, before the water crisis and at the end of 2015 in the same figure. You may assume that the market size at the end of 2015 is larger for bottled water (as it should be the case). Moreover, you should indicate the retail prices for bottled water in the same figure. (iii) Consumer surplus is an important measure of effectiveness of a pricing policy on consumer welfare which is particularly indispensable for markets in crisis. Using the figure in part i), identify the three key areas contributing to the increase in consumer surplus and explain the key drivers corresponding to each of these areas (iv) After January 2016, as a result of donations, the consumers could also get bottled water from donation/emergency centers. Explain if/how cannibalization happens. Explain if/how arbitrage happens (v) According to local store managers, the retailers had not offered any price incentives such as quantity discounts to donors during the donation period. However, one may argue that offering discounted prices to donors could have helped struggling Flint resident indirectly and that would have been an ethical pricing strategy during the crisis. Please discuss your thoughts on this pricing strategy in general, and explain why retailers may not be able to sustain such a humanitarian pricing strategy.

Explanation / Answer

The equilibrium of a market is the point at which the quantity demanded is equal to quantity supplied. If the price is above the equilibrium price, sellers want to sell more than buyers want to buy, so there is a surplus. Sellers try to increase their sales by cutting prices. That continues until they reach the equilibrium price. If the price is below the equilibrium price, buyers want to buy more than sellers want to sell, so there is a shortage. Sellers can raise their price without losing customers. That continues until they reach the equilibrium price.

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.