What is the better deal? | Budgeting and saving | Financial Literacy | Khan Academy

In this video, we're going to play a game that I like to call "What is the Better Deal?"

So, let's look at an example. Let's say there's a 16-ounce bottle of shampoo that costs four dollars. And let's say there's another bottle of that shampoo on the right next to it on the store shelf. It's the same brand, same shampoo, just a different size. It's 35 ounces, and it costs seven dollars.

Pause this video and think about which is the better deal.

So, there's several ways of approaching this. You might see that, wow, 35 ounces is more than double 16 ounces, and the price isn't more than double four dollars. So, this is probably the better deal.

But just in case it doesn't jump out at you that way, you could think about something known as unit pricing or unit costs. The way we could do that is we could take the price—let's say in this top example, the bottle costs four dollars—and then we'll divide it by the number of ounces we have. Divided by 16 ounces, you might recognize that this is going to be 25 cents an ounce.

You might be able to do that math in your head, or you could punch that into a calculator: 25 cents per ounce.

The other situation right over here, if we took 35—or we took seven dollars, I should say—seven dollars divided by 35 ounces. If you do the math there, that is going to be 20 cents, 20 cents per ounce.

So, here you're able to make an apples-to-apples comparison. You know where you're paying more or less per ounce, and we can see that our initial intuition, our initial gut, was right, that the larger bottle here is indeed cheaper.

And that's why you see sometimes people like to buy the larger sizes; sometimes they'll buy in bulk because it's often the case that the larger sizes you get are cheaper per unit, per ounce, per use, per square foot—whatever we're talking about.

Now it is good to verify. I have sometimes been in the store where the bulk pricing actually is not cheaper than the less bulk pricing. So, always try to do the math; maybe you walk around with a calculator.

Or, it turns out, in many stores, they do the unit pricing for you.

So, this is an example of a price that, or something that you might see for the price at a store. And this looks like it's some kind of—I don't know— toilet paper or something. It says six rolls of Ultra Comfort Care something or another, and the price here is eight dollars and 49 cents.

But they give us the unit pricing; it's right over here. They're saying five dollars and two cents per square foot.

So, if there was another different size of this exact same toilet paper, you could compare it on a per square foot basis to figure out which is cheaper. Or maybe there's two brands that also are coming in different sizes; you can compare which is cheaper by looking at the per square foot.

It'd be more grammatically correct to say per square foot, but I think you get the idea. And it's not always going to be per square foot; it might be per ounce, it might be per use.

But the important thing is that you're comparing the same units to figure out which one is the better deal.