Question

F6: The Logic of Individual Choice 15 15 unread replies. 15 15 replies. Joseph Gallo, the founder of the famous wine company that bears his name, said that when he first started selling wine right after Prohibition (laws outlawing the sale of alcohol), he poured two glasses of wine from the same bottle and put a price of 10 cents a bottle on one and 5 cents a bottle on the other. He allowed people test both and asked them which they wanted. Most wanted the 10-cent bottle, even though they were the same wine. What does thus tell us about people? Can you think of other areas where that may be the case? What does this suggest about pricing? Is the rational choice theory still applicable in this case?

IT MUST BE AT LEAST 250 WORDS VERY IMPORTANT.

Answer 1

This shows that people believe that higher the price of a product, better is its taste and quality.

Yes, in case of cars and food served in restaurants etc it is believed that higher prices mean higher quality of good.

Although yes, in some cases higher prices do imply higher quality, but no too much. The price charged is much higher than the improved quality.

The rational choice theory is still applicable in this case because people do believe in price-quality relationship and will justify paying a higher price to get a better quality good.