Answer to Question #97272 in Microeconomics for Nurzie Athirah Binti Khaidzir

Question

You win a free gift in a competition. Is the gift free? Explain

Answer 1

When presenting a gift, an economist considers an array of factors one of them being expectations and reciprocity. Humans are often driven by the need to fulfill an expectation. The economic theory of "gift exchange" explains that people reciprocate generosity and that gives a gift a transactional value. An example is voluntarily working extra hours after receiving a salary bonus. The employee might try to equate the extra hours with the sum close to the bonus received. In essence, they are reciprocating. Thus, a gift is not free, it has an assumed value that the recipient may try to reciprocate