Diwali and Dhanteras are both considered to be very important and auspicious occassions of the Hindus. Almost all the people celebrate it with much gusto. Also it is this time of the year when it is customary to buy something in gold silver or any other metal for the household, since it is considered to bring in good luck. So naturally there is a demand in the market for these. Hence not only from the celebration point of view, they are important from the customer-consumer-producer-seller perspective also.
Last year, I went to shopping with my mom during this time to a well known shop to buy silver items. It was chocking with customers, primarily women. We decided to buy a gold coin and silver bar. A 20 gram 999 purity silver bar was available for INR 1400 and a 22 kt 1 gram gold coin was available for INR 3500. Much to our surprise, the shopkeeper said that we just need to pay half the price of silver bar if we are buying the gold coin. And we will get a 5 gm silver coin free if we buy a 20 gm 999 silver coin worth INR. 1800. That was pleasantly surprising. He added that since the footfall is very high in his shop , he had decided to arrange things this way to please his customers. Eventually we ended up buying both the gold and silver coins along with the free and duscounted ones.
We see many concepts in economics in this case.
First- people respond to incentives.. we ended up buying things even when there was no plan to buy it since a lucrative offer was given to us.
Second-consumer surplus( the difference between what the consumer is willing to pay and what he pays ultimately). We got one bar at half the actual price and one coin free with the other. That is the implicit gain we made.
Third-producer surplus(the difference between what the producer or seller wants to sell at and what he actually sells for). The shopkeeper was offering discount and all not at the cost of his loss. He definitely would have gained much more from all these.
Last year, I went to shopping with my mom during this time to a well known shop to buy silver items. It was chocking with customers, primarily women. We decided to buy a gold coin and silver bar. A 20 gram 999 purity silver bar was available for INR 1400 and a 22 kt 1 gram gold coin was available for INR 3500. Much to our surprise, the shopkeeper said that we just need to pay half the price of silver bar if we are buying the gold coin. And we will get a 5 gm silver coin free if we buy a 20 gm 999 silver coin worth INR. 1800. That was pleasantly surprising. He added that since the footfall is very high in his shop , he had decided to arrange things this way to please his customers. Eventually we ended up buying both the gold and silver coins along with the free and duscounted ones.
We see many concepts in economics in this case.
First- people respond to incentives.. we ended up buying things even when there was no plan to buy it since a lucrative offer was given to us.
Second-consumer surplus( the difference between what the consumer is willing to pay and what he pays ultimately). We got one bar at half the actual price and one coin free with the other. That is the implicit gain we made.
Third-producer surplus(the difference between what the producer or seller wants to sell at and what he actually sells for). The shopkeeper was offering discount and all not at the cost of his loss. He definitely would have gained much more from all these.
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