Final answer:
Buyers compare the product's actual price to a reference price to determine perceived value and savings, with perceptions of gains and losses typically viewed in percentages.
Price can also serve as an indicator of quality in situations where buyers have imperfect information. Understandings of the opportunity cost are essential and may not always align with the monetary price.
Step-by-step explanation:
Buyers compare the reference price to the actual price of the product, which helps them decide how much they would be willing to pay for the item. From a behavioral economics perspective, most people evaluate outcomes relative to a reference point, such as the cost of the product, and think of gains and losses as percentages rather than using actual savings. For instance, someone might not see the value in saving $10 on a $10 item compared to saving $10 on a $100 item, because they perceive the savings differently based on the relative cost.
Additionally, when there's imperfect information, the price can act as a signal of quality to a buyer. A higher price might lead to the assumption that a product is of higher quality, regardless of the buyer's expertise in that area. Therefore, the actual price can be a critical factor for buyers not only in terms of savings but also as an indicator of value.
Identifying the true opportunity cost can be challenging since it's not always accurately captured by the price in dollars, especially when considering the costs of time involved in the acquisition of a product or service.