American Pricing Paradox: Exploring Scarcity And Value Of Water And Gasoline

ECON 3041 Managerial Economics

Why do Americans value bottled water more than gasoline?

Question 1:

Water is not scarce as gasoline in America. However, according to Americans bottled water has more value than gasoline and that is why they are willing to pay more for the water that is a renewable resource than for gas that is a non-renewable resource.

Question 2:

• Water itself
• Culture

When the Americans purchase bottled water at a higher price, it is because they are paying for the water itself and also for the lifestyle. There is also an element of bottle culture whereby Americans love bottled water.

Question 3: 

From the analysis of the case provided in this context, paying for the lifestyle means paying more than the value of the product. This may be because the consumers want to belong to the certain social class that is associated with high standards of living (Paul, 2002). Therefore, a consumer won’t buy a product (bottled water) with a core purpose of meeting an essential need but to identify themselves with a certain class in the society.

The culture of Americans on bottled water suits as paying for lifestyle when compared to other societies Africa that have to walk many miles in search of water. This is in contrast given that majority of the Americans have water purifiers at their homes and ends up buying bottled water yet in Africa most communities cannot even afford a reliable source of drinking water.

The economists argument that water scarcity can lead to another word war lacks substantive evidence and therefore not true. First, water is a renewable resource, and therefore its availability is guaranteed throughout, unlike gas. Secondly, the price of water being higher than that of gas is not because in real sense water has a higher value than gas. Instead, the lovers of bottled water have attributed bottled water to the high lifestyle. Third, the retailers of bottled water have observed that consumers of bottled water associate high price to the quality. Therefore, they tend to increase the price of bottled water every year. If the price of water too high for the consumers, it does not mean they will not access commodity. This is because there are springs and other sources where they can obtain water at no cost at a low price.

Question 4. 

• Nutrition and hydration of the consumers with an attitude that bottled water contain these aspects and they will lead to a healthy lifestyle.
• Marketers’ messages appeal to the consumers to buy more bottled water.

Question 5:

• Gasoline is obtained from crude oil which is prone to the price fluctuation as per the demands and supply in the world market.Therefore, low supply and high demand of the crude oil will lead to increased gasoline in recent years.
• Alternatively, inflation may cause the escalation of the gasoline prices.

Question 6:

If the United States continue and other powerful nations such as Russia and China continue to exercise their hegemony powers to oil producing countries especially the Middle East nations’ gasoline will remain a political commodity. This is because the economic power will never be balanced. Therefore, it is difficult for the balance of economic power to shift from those “who do not have” to those “who have” oil.

Question 7:

Water is a lifestyle because those who purchase it at a higher price do it at their volition. Similarly, the retailers can set their prices high, and the consumers will still buy (Paul, 2002). On the other hand, gasoline is determined by geopolitical forces in oil-producing countries. Besides, the federal government imposes very little tax to prevent complaints from the consumers.  

Question 8:

The pricing paradox is usually determined by two factors (Edwards & Holt, 2012). The price of bottled water is more than that of gasoline. It is true water more useful than gasoline, but it is expensive to extract gasoline than it is to obtain water. However, the pricing paradox of water is based on lifestyle. Therefore, the consumers of water will be willing to spend more without complaints. On the other hand, the pricing paradox of gasoline is politically influenced hence the price controlled by the government. 

References

Edwards, D. J., & Holt, G. D. (2012). Conceptualisation of the consultancy pricing paradox. International Journal of Building Pathology and Adaptation, 3(4), 357-378.

Paul, N. C. (2002, August 5). Water & Gas: An American Pricing Paradox. Retrieved from The Christian Science Monitor: https://www.csmonitor.com/2002/0805/p11s02-wmcn.html.