Final answer:
Research shows that consumer perception of quality is often influenced by an item's price, with higher prices acting as a signal of better quality in the presence of imperfect information. This effect can alter consumption patterns, but it is not a reliable long-term strategy for indicating quality as consumer perceptions can adjust over time with increased information.
Step-by-step explanation:
Consumer Perception and Price
Research indicates that consumer perception of quality is often influenced by the price of an item. This correlation largely arises due to imperfect information; consumers tend to use price as a heuristic or indicator of quality. For instance, a more expensive gemstone might be perceived as having higher quality even when the buyer lacks expertise in evaluating gemstones. Similarly, people may believe that food from an expensive restaurant or a piece of art with a high price tag must be better. This assumption extends to professional services as well; a lawyer who charges more per hour may be presumed to be more skilled than one with lower fees.
The impact of this perception influences behavior and consumption patterns. While a higher price usually results in reduced consumption of that good, it can also serve as a quality signal that could lead to increased consumption, especially if consumers value quality highly. However, these effects have limits. Extreme prices can deter demand, and when prices fall sufficiently, even lower-quality goods can seem valuable to buyers. Over time, as information spreads, consumer perceptions can adjust, making high prices an unreliable long-term strategy for indicating quality if the product does not live up to expectations.