Explain and give an example of a mental transaction cost.
Mental transaction cost refers to the thought that goes through all of our heads when we have to chose to purchase something when a price was strapped to it. IF there were a bowl of 5 cent Hershey Kisses and 15cent Lindor Truffles, you might decide that 10cents more isn't a big deal, so you'll go ahead and pay it for the "better" chocolate. But if the Kisses were free, we'd of course go for them. No thought process. We aren't asking our selves "is it worth it?" When its free, its worth it - you're not losing anything!
I am also taking a music indistry class and have recently learned that even platinum selling artists usually end up in the red after a million copies of their CDs are sold - a few hundred thousand in debt! Only 2 or 3% of the record industry's top musicians actually turn a profit from sales! So a lot of indy musicians have been giving away their music for free. Angels and Airwaves made their music downloadable from their website. The idea is to make up the potential losses in merchandise and touring sales. So free pays off!
Incredible to learn about the music business - and who is really profiting!
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