Question

Andy will not purchase a computer unless the manufacturer offers a rebate. This is an example of which of the following problems associated with refund and rebate programs?

Answer 1

Andy's requirement for a rebate before purchasing a computer is an example of how refund and rebate programs can influence consumer behavior, potentially affecting work incentives and decision-making similar to government welfare impacts.

Step-by-step explanation:

Andy's condition that he will not purchase a computer unless the manufacturer offers a rebate can be seen as an example of one of the problems associated with refund and rebate programs. This situation illustrates consumer behavior being influenced by financial incentives, which may lead to lower work effort or productivity as consumers may rely on rebates or refunds to optimize their gains. In economics, this is often related to the concept of 'income effect' and 'substitution effect' where consumers may adjust their labor supply based on the extra income derived from rebates or refunds, effectively changing their original budget constraints and work choices as described in the provided reference.

The issue here reflects a broader economic problem where external incentives, such as rebates, alter individuals' work decision-making process. If the rebate is significant, it could reduce the value people place on the marginal effort of earning extra money through work, similar to how government programs can alter work incentives. However, the comparison between a rebate program and government welfare may not be perfectly analogous, as the latter has a direct impact on work incentives, while the former typically involves one-time or occasional purchasing decisions.

Answer 2

Andy's behavior is an example of a consumer making a purchasing decision based on the availability of a refund or rebate, highlighting the influence of such programs on consumer behavior.

Step-by-step explanation:

Andy's requirement of a rebate to purchase a computer is representative of a consumer behavior problem associated with refund and rebate programs.

Such programs can influence the purchasing decisions of consumers, sometimes leading to conditional purchasing like Andy's case, where the rebate serves as a deciding factor.

This conditionality can also be seen in work incentive programs, where individuals adjust their working hours in response to changes in economic benefits, choosing points on a budget line that provide a more favorable income-to-leisure ratio, as indicated by positions like S and R described in the scenario provided.