Question

Jo was in the market for a used car when she first moved to Melbourne. She spent many hours walking around at Car City looking for one. She found that the salespeople were overly friendly and asked her lots of questions about her life, which frankly, were none of their business. Why were the salespeople doing this? How do you think this information affected the price of the car? Jo had a budget in mind and ended up paying her top price for a car. What does this mean? How does this outcome affect producer and consumer surplus? What about society as a whole?

Answer 1

Salespeople are over friendly because they need to sell their company's product. Their prime intention is to convince the customer to buy a product which is having high price. Then only they achieve their target easily. For that they used to be more polite and friendly.  

If the customer becomes more friendly then they can determine the price of the product. So that the customer will not tend to refuse the price. And they will be ready to pay that price even though they really wants. At this case, the consumer surplus will increase and producer surplus will decrease. Because they are paying more than the value they are getting.

Starbucks is an example for this. Because they are not selling coffee. Instead they are selling the experience. You will get a same coffee from an ordinary shop, but Starbucks convinced you to pay higher through their friendliness and elegant service that they are providing. So the consumer surplus will be high in this case. Because you are willing to pay higher than that you thought.

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