Elasticity of Demand
Part 1 – Article Analysis- The following is an excerpt from a January 2018 article about the new football stadium in Atlanta, GA. Read the excerpt and answer the questions below.
“When the Atlanta Falcons announced the food prices at their new $1.5 billion stadium — $2 hot dogs and sodas, $3 nachos… — fans loved it….. The Falcons owner had made a calculated bet that what the organization lost in price markup, it would recoup in volume — fans would come earlier, stay longer and buy enough food to make up the difference.
About 6,000 more fans per game entered the stadium earlier than they did in 2016, and in general, the venue sold as much food by the end of the first quarter of Falcons games as it did in full games in 2016. [Fans] also bought more food — sales were up 53 percent — and each fan spent, on average, 16 percent more on concessions (food and drinks).
Atlanta’s pricing is a dramatic departure from standard prices in NFL stadiums. At $2, hot dogs at
Falcons home games cost less than half the league average $5, according to the 2016 Team Marketing Report.” (Bloomberg News)
1. Re-explain, in your own words, the Atlanta stadium owner’s “calculated bet.”
2. Explain why the success of this strategy depends heavily on the elasticity of demand of the food and drinks sold in the stadium.
3. If the price of food and drinks decrease by more than 53% and “sales were up 53 percent,” is the demand for concessions in the stadium relatively inelastic, relatively elastic, or unit elastic? Explain.
4. Assume that the stadium owner decided to allow unaffiliated vendors to sell nachos inside the stadium. Would the demand for nachos become more inelastic or more elastic? Explain.
Elasticity of Supply
Part 2 – Article Analysis – Read the following article excerpt regarding the 2016 fidget spinner fad.
“Fidget spinners had been around for years, marketed as aids for kids with attention problems (a claim that has little scientific backing). But they were never particularly popular. That changed last year (2016), after a rash of videos appeared on YouTube featuring teenagers performing fidget-spinner tricks. That caught the attention of Chinese factories, many of which have begun to employ squadrons of workers to monitor social media and Google Trends, allowing them to jump on the next big consumer-product craze as soon as it starts materializing.” www.nytimes.com Part 1 – Article Analysis – Read the excerpt regarding Caterpillar Inc. and answer the questions.
“Orders for the mining machines and construction bulldozers made at this sprawling Caterpillar Inc. factory in central Illinois have jumped, in general, three-fold over the past year (2018)….But meeting that boom in demand at the world’s largest heavy equipment manufacturer is a challenge…” www.reuters.com
5. Do you think that the supply for new bulldozers is relatively inelastic or relatively elastic? Explain your reasoning.
Part 3 – Article Analysis – Read the following article excerpt regarding the 2016 fidget spinner fad.
“Fidget spinners had been around for years, marketed as aids for kids with attention problems (a claim that has little scientific backing). But they were never particularly popular. That changed last year (2016), after a rash of videos appeared on YouTube featuring teenagers performing fidget-spinner tricks. That caught the attention of Chinese factories, many of which have begun to employ squadrons of workers to monitor social media and Google Trends, allowing them to jump on the next big consumer-product craze as soon as it starts materializing.” www.nytimes.com
6. In general, how does the rise of Chinese factories that monitor trends affect the elasticity of supply for toys? Explain your reasoning.
Part 4 – Stretch Your Thinking – Answer the question.
7. The elasticity of demand for a product can be determined by analyzing the change in total revenue as a result of a change in price. Explain why this method can’t be used to determine the elasticity of supply for a product.