Lisa needs to buy a textbook for the next economics class. The price at the bookstore is $65. One online site offers the same book for $55 and another site for $57. All prices include sales tax. The following table indicates the typical shipping and handling charges for the textbook ordered online.
Delivery time = 3-7 days, S&H = $3.99
Delivery time = 2 business days, S&H = $8.98
Delivery time = 1 business day, S&H = $13.98
a. What is the opportunity cost of buying online?
b. Show all relevant choices for this student.
c. What determines which of these options the student will choose?
Take a shot, what do you think.
Hint: first eliminate the clear loser options. The $57 purchase is a clear loser as one can make an online purchase for $55. The 1-day delivery is also a clear loser. The opportunity cost of getting the book for $58.99 instead of 65 is the possible 7-day wait. Take it from here.
a. The opportunity cost of buying online refers to the cost of not buying the textbook from the bookstore. In this case, the opportunity cost is the difference between the price at the bookstore and the price online.
Opportunity cost = Price at the bookstore - Price online
Opportunity cost = $65 - $55 = $10
The opportunity cost of buying online is $10.
b. The relevant choices for this student are:
1. Buying the textbook from the bookstore for $65.
2. Buying the textbook online from site 1 for $55 with a shipping and handling charge of $3.99.
3. Buying the textbook online from site 2 for $57 with a shipping and handling charge of $3.99.
4. Buying the textbook online from site 1 for $55 with a shipping and handling charge of $8.98 (2 business days delivery).
5. Buying the textbook online from site 2 for $57 with a shipping and handling charge of $8.98 (2 business days delivery).
6. Buying the textbook online from site 1 for $55 with a shipping and handling charge of $13.98 (1 business day delivery).
7. Buying the textbook online from site 2 for $57 with a shipping and handling charge of $13.98 (1 business day delivery).
c. The choice of which option to choose depends on various factors such as:
1. Price sensitivity: If the student is price-sensitive and wants to save money, they would likely choose the online options with the lowest price.
2. Time sensitivity: If the student needs the textbook quickly, they might choose the online options with faster delivery times, even if it means paying higher shipping and handling charges.
3. Overall cost: The student may consider the total cost of each option, including the price of the textbook and the shipping and handling charges. They may choose the option that offers the best balance between price and convenience.
4. Reputation and reliability of the online sites: The student might consider the reputation and reliability of the online sites before making a decision. If one site has a better reputation for timely delivery and customer service, they might choose that option.
Ultimately, the specific factors that determine the student's choice will depend on their individual preferences and circumstances.