Question

A researcher on consumer theory of demand surveyed the items for sale on the shelves of a leading supermarket chain. He identified two bottles of the same item, namely “Organic – Extra Virgin – First Cold Pressed - Olive Oil”. But these were priced differently, despite the volume and the product’s narrative, being the same.

One bottle was priced at $19.50

The other bottle was priced at $9.00.

On closer examination, he noted that the cheaper item was a plastic bottle with a plastic cap, whilst the more expensive item was a glass bottle with a metal (tin) cap.

You may have already formed a preliminary view on which of these two items is more environmentally friendly than the other.

Nevertheless, explain how you would ascertain which of these two items is more environmentally friendly than the other by using:

(a) The first and second laws of thermodynamics in qualitative and a systematic

manner;

(b) The market framework involving public goods and externalities.

Answer 1