Human Irrational Price Sensitivity

In economics, there is a term known as "price elasticity" which refers to consumers' change in quantity demanded due to a change in the price of a commodity. The level of elasticity varies for different product. The reason for the difference is obvious is some cases, but I want to talk about the cases where the elasticity just doesn't make sense in relation to general level that consumers have for all goods. And I am a slave to this irrational thinking like the millions of others suffering from the affliction.

The most noticeable and probably most price-sensitive good in the American economy is gasoline. People always talk about the price and it's often a favorite subject in the news. Many go to great inconvenient lengths to go out of their way to save 10 cents a gallon on gas. They may change their route by going to a gas station not on the way to their destination. Or, they may pick the station with a giant line of cars (usually Arco) because it has a lower price than the one next to it, which happens to have plenty of free pumps. The thing that makes this sensitivity irrational is the amount of money involved. A price difference of 10 cents, for instance, means a variation of a $1.50 at most for a fill up. For this, people are willing to waste valuable time and hassle. Most of these same people don't think twice spending money on other items without considering the exact price because they figure it will be within reason. But gas is an exception.

The reason for this behavior is due to the fact that gas is the only product that displays its prices so prominently outside. Because of this, the current market price becomes known to everyone just by looking around as they go places. The constant bombardment with the market price causes the public to have an obsession with the issue and results in a passion for always trying to get the lowest price, even at the cost of inconvenience for the sake of a small amount of savings.

Other commodities are not the same. Say, for instance, you want to buy a gallon of milk. You drive to the Safeway and go inside. You don't know the price they are charging for it until you get inside the store since they don't have a sign indicating the price outside. If they, and every other supermarket did this, people with the sole purpose of just buying milk might be more sensitive to the price of it. But since they don't, you find out when you get inside and if it's 20 cents more than you thought it would be, you buy it anyway because it's not that big of a deal to make going somewhere else worth it.

Another item that people are irrationally price-sensitive to is the cost of long distance. With rates 10 cents or less for US calling, it really shouldn't be a big deal if you need to use someone's phone to make a call when visiting them as long as it is not an hour conversation or something. Or people might rush you off the phone because they don't want the bill to run up. In this case, I think that history is to blame. Long distance, before the AT&T breakup, cost way more money than it does now. I think that even though the cost has come way down, people are still conditioned to be wary of their use of the commodity, and that includes those who weren't even around during the time of high-cost long distance. These younger people are "infected" with the irrational price-sensitivity from the older folks who were.

There are other items, but these are the two that stand out for being the most elastic, or price sensitive, consumer goods. Really, when compared to the general level of thriftiness in society, there is no rational reason for why people focus of these certain items. Put another way, there is no economic reason for it. If people thought a little about the true cost in relation to their level of worry, hassle, or wasted time, I think many people would change their habits and not focus so much on these items and their lives would become just a little easier.


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