Studies have found that most consumers undertake little prepurchase

Question

Studies have found that most consumers undertake little prepurchase research into durable goods (goods that are typically used repeatedly over a period of years) and do even less price- comparison shopping, despite the reported importance of price to consumers’ purchase decisions. In view of this finding, it is interesting that studies have documented considerable price variation for durable goods within local markets. Moreover, prices of more expensive durable items tend to exhibit the greatest price variation from store to store.

Why does consumers’ willingness to engage in price-comparison shopping not increase concomitantly with price variation of durable goods? One potential explanation is that consumers simply underestimate the potential savings from comparison shopping and undertake less comparison shopping than expected. A second possible explanation builds upon Thaler’s transaction utility theory, which suggests that the psychological utility that a consumer derives from saving a fixed amount of money, say $20, is inversely related to the price of the item. For example, a consumer may spend more time comparison shopping for a $100 microwave oven than for a $400 television, even though the consumer expects to find a $20 savings in either case; the explanation for this behavior appears to be that the relative savings seem dramatically higher for the microwave than for the television.

1. The passage suggests that which of the following is true of prices of durable goods?

A. Durable goods tend to exhibit greater price variation at the local level than they do at the regional or national level.
B. Durable goods tend to exhibit more price variation from store to store than do other types of consumer goods.
C. Durable goods tend to exhibit less price variation from store to store than do other types of consumer goods.
D. The prices set by manufacturers of durable goods reflect the fact that those manufacturers are aware that consumers are unlikely to comparison shop.
E. Consumers willing to comparison shop are more likely to discover greater price variations on relatively expensive durable goods than on lower-priced durable goods.

2. The primary purpose of the passage is to

A. consider possible explanations for a certain phenomenon
B. recommend a new approach to the study of a certain phenomenon
C. discredit a popular explanation for a certain phenomenon
D. report on the results of studies concerning a certain phenomenon
E. demonstrate the validity of a particular theory about a certain phenomenon

3. Which of the following, if true, would most clearly undermine Thaler’s transaction utility theory, as it is described in the passage?

A. Consumers are more likely to comparison shop for small appliances such as toasters than for large appliances such as washing machines.
B. Consumers are more willing to comparison shop if they believe they can save $50 on a television than if they believe they can save $25 on the same television.
C. Consumers consider a $25 price reduction on a stereo system equally attractive, regardless of the price of the system.
D. Consumer shopping patterns for durable goods do not differ significantly from shopping patterns for other types of goods.
E. Consumers tend to undertake more prepurchase research into relatively inexpensive durable goods than they do into relatively expensive durable goods.

4. The passage offers which of the following as a possible answer to the question posed in the highlighted text?

A. Many consumers do not behave in the manner predicted by Thaler’s transaction utility theory.
B. Many consumers are not aware that they could achieve significant savings on durable goods by price-comparison shopping.
C. Consumers are more likely to seek a price reduction on a relatively expensive item than on a relatively inexpensive item.
D. Consumers who put considerable effort into researching the goods they decide to purchase are more likely than other consumers to price comparison shop.
E. Consumers are likely to believe that price variation for a particular durable item will be the same from one local market to another.

5. Which of the following best describes the organization of the passage?

A. A theory is presented and examples to support that theory are offered.
B. A widely held belief is noted and examples refuting that belief are discussed.
C. A finding is presented and some possible explanations for that finding are outlined.
D. A phenomenon is described and specific examples of that phenomenon are noted.
E. A hypothesis is introduced and some arguments opposing that hypothesis are given.

6. Studies mentioned in the first paragraph of the passage suggest which of the following about consumer purchasing behavior with respect to durable goods?

A. Consumers' willingness to undertake prepurchase research into durable goods increases in proportion to the length of time they expect to use those goods.
B. Consumers are willing to invest a significant amount of time in comparison shopping only for the most expensive types of durable goods.
C. Consumers often undertake either prepurchase research into durable goods or comparison shopping for such goods, but rarely do both.
D. Consumers are more likely to undertake prepurchase research into durable goods than they are for other types of consumer goods.
E. Consumers make little effort to obtain savings on durable goods despite their claims that price is an important factor in their purchasing decisions.

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Show Answer Question #1

Official Answer

E

Show Answer Question #2

Official Answer

A

Show Answer Question #3

Official Answer

C

Show Answer Question #4

Official Answer

B

Show Answer Question #5

Official Answer

C

Show Answer Question #6

Official Answer

E

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Carcass · Answer

Studies have found that most consumers undertake little prepurchase research into durable goods (goods that are typically used repeatedly over a period of years) and do even less price- comparison shopping, despite the reported importance of price to consumers’ purchase decisions.

The customers, based on a research, miss two things fundamentally:
1) they do little research upfront before to buy durable goods (think about for example a smart tv)
2)they perform little to zero research to compare the prices of the same item even though this is quite important

In view of this finding, it is interesting that studies have documented considerable price variation for durable goods within local markets. Moreover, prices of more expensive durable items tend to exhibit the greatest price variation from store to store.

1) The consequence of the behavior above is two-fold: remarkable variations in the prices of the item we consider
2) From store to store the same item which is more expensive has a fluctuation in the price greater than a durable item which costs less

Why does consumers’ willingness to engage in price-comparison shopping not increase concomitantly with price variation of durable goods? One potential explanation is that consumers simply underestimate the potential savings from comparison shopping and undertake less comparison shopping than expected

1) why regardless the important findings above the customers still do not perform an important price comparison? On reason is that the same customers do not understand the potentiality of the price comparison

second possible explanation builds upon Thaler’s transaction utility theory, which suggests that the psychological utility that a consumer derives from saving a fixed amount of money, say $20, is inversely related to the price of the item.

Thaler's theory could explain that: consumers perceive more important to save for example 20 bucks for a durable item which costs overall not that much, suppose 100 dollars. However, if the durable good costs 1000 dollars the utility is perceived less

For example, a consumer may spend more time comparison shopping for a $100 microwave oven than for a $400 television, even though the consumer expects to find a $20 savings in either case; the explanation for this behavior appears to be that the relative savings seem dramatically higher for the microwave than for the television.

An example is also useful when we need to understand the utility between durable items.

Carcass · Answer

QUESTION #1

1. The passage suggests that which of the following is true of prices of durable goods?

A. Durable goods tend to exhibit greater price variation at the local level than they do at the  regional or national level.

Not mentioned whatsoever in the passage the variation at different market level

B. Durable goods tend to exhibit  more price  variation  from store to store than do other types of consumer goods.

No finding or info in the passage about the highlighted portion

C. Durable goods tend to exhibit  less price  variation from store to store than do other types of consumer goods.

No info about that

D. The prices set by manufacturers of durable goods reflect the fact that those manufacturers are aware that consumers are unlikely to comparison shop.

Not information about the manufacturers and what the know about consumers

E.  Consumers willing to comparison shop are more likely to discover greater price variations on relatively expensive durable goods than on lower-priced durable goods.

Correct, It is a rephrasing of the last sentence in the first paragraph

Carcass · Answer

QUESTION #2

2. The primary purpose of the passage is to

A. consider possible explanations for a certain phenomenon

Correct. Pretty straight

B. recommend a new approach to the study of a certain phenomenon

No new approach to the described phenomenon. We do have two possible explanations

C.  discredit  a popular explanation for a certain phenomenon

No negative assessments in the passage

D.  report on the results  of studies concerning a certain phenomenon

No we do have two possible scenarios

E. demonstrate the  validity of a particular theory  about a certain phenomenon

The theory is used to explain something we do not understand NOT to asses if the theory is correct or not. However, it is supposed that IF a theory is presented in the passage IF not else is casted or explained the theory , basically, is correct

Carcass · Answer

QUESTION #3

Maybe the trickiest among the three. This is a kind of weakening question. The key is the following sentence

theory, which suggests that the psychological utility that a consumer derives from saving a fixed amount of money, say $20, is inversely related to the price of the item.

In a nutshell, if something goes up then the utility goes down or the other way around. In brief, we do have two opposite things that go in a different direction.

3. Which of the following, if true, would most clearly undermine Thaler’s transaction utility theory, as it is described in the passage?

A. Consumers are more likely to  comparison shop  for small appliances such as toasters than for large appliances such as washing machines.

We do not care to compare shops but items

B. Consumers are more willing to  comparison shop  if they believe they can save $50 on a television than if they believe they can save $25 on the same television.

again shops  
eq  items

C.  Consumers consider a $25 price reduction on a stereo system equally attractive, regardless of the price of the system.

Correct. We are dealing with money, reductions, and prices

D. Consumer shopping patterns for durable goods do not differ significantly from shopping patterns for other types of goods.

Shopping patterns are NOT prices and money

E. Consumers tend to undertake more prepurchase research into relatively inexpensive durable goods than they do into relatively expensive durable goods.

expensive versus inexpensive nothing tells us about utility and money

sanebeyondone · Answer

Regarding Q3.

"Thaler’s transaction utility theory, which suggests that the psychological utility that a consumer derives from saving a fixed amount of money, say $20, is inversely related to the price of the item"

Isn't "is unrelated to the price of the item"  more clear than  " is inversely related to the price of the item" ?

If something is " inversely related " it means something goes up and another goes down.

But Q.3 choice C. says "Consumers consider a $25 price reduction on a stereo system equally attractive, regardless of the price of the system."

the word "regardless" equals to (=) "unrelated",  NOT  "inversely related"

I thought choice E was the right answer

(E. Consumers tend to undertake more prepurchase research into relatively inexpensive durable goods than they do into relatively expensive durable goods.)

Maybe the word "fixed" in "fixed amount of money" has something to do with this?

Oh....I get it now..... it's about the price reduction and how big is its proportion to the selling price of the item.

Trickery!

hughng92 · Answer

Bunuel

Additional question for this passage is attached. Thanks!

bb · Answer

Thank you. Added the 4th question to the list.

Correct answer: B as it matches the first explanation offered in the passage: consumers underestimate the potential savings from comparison shopping, which leads them to engage in less price-comparison shopping than expected. This answers the question posed in the highlighted text.

mohitchowdhury · Answer

Underestimating and not being aware are two different things. How B can be OA?

josiewhoasie · Answer

Totally agree mohitchowdhury. The only explanation I can think of is that "not being aware of SIGNIFICANT savings" = underestimating in GMAT's eyes.

chattyyee · Answer

Adding additional questions I came across,  bb  please do the needful!

Bunuel · Answer

______________________________
Added the questions. Thank you!

Studies have found that most consumers undertake little prepurchase

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Studies have found that most consumers undertake little prepurchase

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