Value of presents for the receiver vs the price of the present

Evelina Zavtoni

There are different pricing techniques that can make the gift-giver to purchase a certain present. These are: price charm for products ending in 99 pence, exclusive pricing such as Apple selling a lifestyle and visual tactics for example writing the prices without comma. When we receive a meaningful gift, the positive emotions we feel get linked to the gift in our minds. Therefore, if the positive emotion is lower than the actual price of the product the gift is not as valuable.

Application of economic theory

You cannot assume that a receiver of the gift will put the same value on the gift as the value set on a price tag. But it can be noticed that an experience gift, such as a paid holiday or theatre tickets can be valued more.  Gift-givers and gift-recipients may have different beliefs about the value of a gift, and the value of a gift may not be determined solely by its price:

  • Gift-givers: Tend to believe that more expensive gifts are more thoughtful and appreciated as gift-givers think about desirability when giving a present. However, research suggests that gift-givers may underestimate how uncomfortable recipients feel receiving a gift they can't reciprocate.
  • Gift-recipients: May not associate the price of a gift with how much they appreciate it. They may prefer a low-cost gift because it may indicate kindness or thoughtful consideration. Also, gift-recipients may be more inclined towards practical gifts that are feasible.

Very expensive gifts can give a feeling of indebtedness, as the person may have a burden of repaying the gift givers in the future. A gift must be thoughtful, gift-givers enjoy giving thoughtful gifts that are recipient oriented. While gift-recipients prefer to receive thoughtful gifts that reflect the giver. Therefore, it is recommended to give presents that reflect your true self. The saying of give what you would like to receive is more than relevant here. It must be noted that there is a deadweight loss in gift-giving as is estimated that 30% of the value of all gifts is wasted when a gift receiver returns a gift. But there is a solution as there is a very specific gift that is always worth the exact same value for both givers and receivers, which is cash. The receiver can always make use of 100% of the cash value but is not sentimental enough. Which concludes that the best gift you can give is the gift the recipient asks for.

The deadweight loss in the dissatisfaction of a gift receiver is illustrated in the below graph.


(Jason Welker of Economics in Plain English)

The vertical axis represents "Society's Benefits/Costs," which includes the value of benefits to individuals and the costs of producing gifts. The horizontal axis represents "Quantity," referring to the number of gifts exchanged. Marginal Social Cost of Gift Production (upward-sloping line): Represents the increasing cost of producing and purchasing additional gifts. This includes not only monetary costs but also time and effort. Marginal Benefit of Gift Recipient (downward-sloping line): Shows the diminishing value or satisfaction recipients derive from additional gifts. For example, the first gift may be very meaningful, but the fifth or tenth may be less so. Marginal Benefit of Gift Giver (horizontal line): Indicates the constant benefit or joy givers feel from the act of giving gifts, irrespective of how many they give.

The Efficient Quantity is where the marginal benefit of gifts equals their marginal social cost. This point ensures resources are optimally allocated, with no waste. The Actual Quantity Given exceeds the efficient quantity, showing that too many gifts are exchanged, creating inefficiency. The green triangle labelled "DWL" represents the inefficiency or wasted resources caused by over-gifting. This happens when the costs of gift production (financial and social) outweigh the benefits derived from them. The graph points out that excessive gift-giving leads to negative social benefits. For instance, some gifts may be unwanted, creating a mismatch between what is given and what recipients truly value. This results in over-allocation of resources towards "unwanted gifts."

Conclusion

In conclusion, the perfect gift harmonizes the giver’s intent with the recipient’s needs and emotions. While cash guarantees practical value, a meaningful or requested gift often carries the best balance of emotional and practical worth.

References:

https://www.youtube.com/watch?v=Q9UUu2JBQB0

https://www.youtube.com/watch?v=xE9mPmWEOQ8


About the Author
Evelina Zavtoni is a 2nd Year Accounting and Finance student, interested in Accounting, Banking, Finance, Economics and how these subjects affect our day-to-day life. If you are interested in the same subjects, please don’t hesitate to email me. My email address is e.zavtoni@hss23.qmul.ac.uk.


Comments

Post a Comment

Popular posts from this blog

How the 1973 Oil Crisis Changed the Way America Drives

Image
By Leandro Wiggett Introduction & Overview: What Happened In late 1973, members of OAPEC (Arab oil‑exporting countries) imposed an oil embargo on nations supporting Israel during the Yom Kippur War. The global oil supply was sharply cut, causing oil prices to 4x almost overnight. This was a major negative supply shock which rippled through economies: energy costs soared, inflation surged, growth slowed, and consumers and industries were forced to adjust to a new reality of more expensive fuel. The automotive sector, heavily dependent on imported, cheap oil, was among the hardest hit. Consumer Choices and the Shift to Fuel-Efficient Cars American households faced a straightforward budget problem: they couldn't afford both their existing vehicles and the now-expensive gasoline to run them. Their response shows the substitution and income effects working together. The substitution effect was immediate and dramatic. As petrol became more expensive, the relative cost of operatin...
Read more

The Hidden Costs of Vaping: Negative Externalities

Image
  Tamanna Suri (Edited by Sevin Karabulut) Despite UK regulations limiting the amount of nicotine in vapes, consumption of this persists due to smuggling from countries with looser laws. This blog will explore the negative externalities of vaping; it will discuss its impact on public health and NHS spending, thus government spending and the opportunity costs associated with this. Moreover, the blog will consider the UK’s rising national debt to discuss whether the negative externalities justify stricter governance of vaping.   Before delving into the case study, it is important to understand what negative externalities are and their impact on society. Negative externalities refer to the costs on third parties due to the actions of producers and consumers. This blog will focus on the negative externalities of the consumption of vapes in the UK: The graph above demonstrates the negative externalities of vaping consumption.  Here, the marginal private benefit (MPB) e...
Read more

London’s Rent Crisis

Image
Sevin Karabulut London’s rental market has experienced further rises in prices over the past year, due to two main issues: inflation and an increase in demand relative to supply. As a result, many tenants are unable to find affordable homes, leaving them worried and on edge.  The Office for National Statistics illustrates truly how severe the rental crisis in London is. It reveals that private rental prices in the UK rose by 6.2% from January 2023 to January 2024 (ONS, 2024).  Moreover, it highlights that London had the highest annual percentage change as opposed to other parts of England, such as the Northeast, which saw the lowest at just 4.7% (ONS, 2024). Figure: Private rental price percentage change (ONS, 2024) The continued rise in London's rental rate is the result of multitude of factors that increased demand for rental homes. This is illustrated in the diagram as a shift from D to D1 moves the initial equilibrium (E1) output from  P1Q1 to P2Q2...
Read more