Suppose I am visiting the local supermarket to purchase groceries, and I see an advertisement for a store rewards card. The card offers gasoline discounts that are tied to the amount of money that a consumer spends at the store. The advertisement also explains that the rewards accrue after a minimum purchase of $50. I then decide to sign up for the card, in spite of the fact that I had only planned to buy $47 worth of groceries. Why is this decision rational?
Based on various fundamental principles of economics, it is true and evident that human beings are rational thinkers and they respond positively toward incentives. In this case, the store is offering store reward cards, which come with gasoline gifts but are tied to the amount of the money the consumer spends at the store. The advertisement also explains that consumers can only get the reduced price after spending a minimum of about $50. Although I had planned to spend less than that amount, I will buy more and sign for the card due to a number of reasons.
Reasons behind signing up for a store rewards card
To begin with, I believe that it is a rational and critical choice to sign for the card. This is because the card is tied up with several benefits.
Secondly, after signing up for the card, I will be able to get goods at customer friendly price from the supermarket every time I am shopping. Thus, it is also ethical and rational for me to sign up for the card despite my previous plan to spend less than that amount. Critically, analyzing the scenario, I will spend $3 more. However, I will be able to achieve higher and long-term benefits. For example, I will be able to use the card and get other benefits in my future purchase in the supermarket.
It is also true that people respond to incentives in predictable ways, and it is true that an incentive can either be positive or negative in nature and mostly influences the plan an individual make in life especially in buying items. Furthermore, when incentives change, people's actions also change, mostly in a very predictable way.
In this case, the local store and supermarket is applying the fourth economic principle (people respond positive to incentives) in order to influence the consumers buying power. For example, the card is tied up with several rewards, including gasoline profit, and its rewards are directly related to the amount of money the consumer spends. Consequently, I will respond positively, increase my sales and sign up for the card due to the gasoline gifts with the card.
Cost savings increase spending
Similarly, when the prices fall, people will respond positively and buy more. However, when the prices rise, people will respond negatively and buy less. Despite this, it is also true that people choices have intended and unintended consequence. For example, after buying the credit, I will have to make it a routine and buy most of my groceries at the supermarket. So, after buying the credit, I will benefit and the seller will also benefit as well. This is a clear indication that trade makes everyone better.
In life, one must make a choice on whether to spend or save their scarce income. Furthermore, as a rational thinker, I will have to forgo the saving power and purchase the card. In addition, the economic principles indicate that people have the ability to think, and make rational choices concerning their life activities. The card comes with a future reward and promotes consumer interest and needs. Thus, I will be naturally motivated to sign up for the card, and I believe it is ethical and rational choice in nature.
Moreover, after considering the costs of the card, I believe that it has higher benefits (opportunity cost). The marginal benefits tied with card are better than the marginal costs, thus, it has a higher value, thus is both moral and rational in nature. Finally, it is worth noting that signing up for the card is a rational and ethical choice since it provides rewards and other special benefits to the customers. Many supermarkets understand that people respond positively to incentives such as discounts and rewards and are using such economic principles to determine consumers purchasing behaviors.
Article sources
https://en.wikiversity.org/wiki/10_Principles_of_Economics
http://www.adamsmith.org/blog/economics/people-respond-to-incentives