Elasticity

Do You Wonder?

1. Q: How does elasticity of demand push producers to make products differently(variations) to stand out from the competition over time?
   • Let’s go to grocery stores at a different time, the 80s vs Today.
     •   vs. 
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2. Q: Using your knowledge of the determinants of elasticity, explain why the demand for smartphones is very inelastic, while, at the same time, the demand for a specific brand of smartphone is elastic.
3. Q: Two clothing stores located in the same shopping center have a big sale: 20% off on everything in the store. After the sale, Store 1 finds that its total revenue has increased, while Store 2 finds that total revenue has decreased. What does this tell you about the price elasticity of demand for the clothes in each store?
4. Insulin or death
   • Insulin as an example of a good that has an inelastic demand. The following ABC News article and video, “ ‘Insulin or death’: New Hampshire voters gripped by skyrocketing drug prices” discusses the rising price of insulin and the choices diabetics are forced to make to purchase the life-saving drug. https://abcnews.go.com/Politics/insulin-death-hampshire-voters-gripped-skyrocketing-drug-prices/story?id=68778761
   • A news story by The Hill describes how the rising cost of insulin and the lack of insurance coverage for the drug led to a man’s death: https://thehill.com/blogs/blog-briefing-room/news/423874-minnesota-mom-says-26-year-old-son-died-because-he-couldnt/
   • CBS News claims that the high price of insulin may be a human rights abuse issue: https://www.cbsnews.com/news/insulin-price-cost-human-rights-abuse/
5. Convenience Store Advertising: Selection based on the aspect of cross elasticity.
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   • What? 50-cent for a notebook?  The Strategic Use of Loss Leaders in Retail
6. Q: Several products are made in preparation for the annual flu season, although the types of goods vary in terms of their elasticity of supply. Rank the elasticity of supply for the following goods, from most elastic to least elastic: (a) over-the-counter flu remedies, (b) flu shots, (c) chicken soup, and (d) boxes of tissue.
7. Q: Why our wireless tax rates are going up?  (Policy Perspective: Effective tax revenue generation from inelastic goods.)
   • Table U.S. Average Wireless and General Sales & Use Tax Rates

   • 	Weighted Average	Weighted Average	Weighted Average
     	Wireless State & Local Tax & Fee	Wireless Federal Tax & Fee	Wireless Federal/State/Local Tax & Fee		General Sales/Use Tax		Wireless vs. General Sales Tax
     1/1/2003	10.20%	5.07%	15.27%		6.87%		3.33%
     4/1/2004	10.74%	5.48%	16.22%		6.93%		3.81%
     7/1/2005	10.94%	5.91%	16.85%		6.94%		4.00%
     7/1/2006	11.14%	2.99%	14.13%		7.04%		4.10%
     7/1/2007	11.00%	4.19%	15.19%		7.07%		3.93%
     7/1/2008	10.86%	4.23%	15.09%		7.11%		3.75%
     7/1/2009	10.74%	4.79%	15.53%		7.26%		3.48%
     7/1/2010	11.21%	5.05%	16.26%		7.42%		3.79%
     7/1/2012	11.36%	5.82%	17.18%		7.33%		4.03%
     7/1/2014	11.23%	5.82%	17.05%		7.51%		3.72%
     7/1/2015	11.50%	6.46%	17.96%		7.57%		3.93%
     7/1/2016	11.93%	6.64%	18.57%		7.61%		4.32%
     7/1/2017	12.11%	6.34%	18.45%		7.65%		4.46%
     7/1/2018	12.46%	6.64%	19.10%		7.65%		4.81%
     7/1/2019	12.65%	9.05%	21.70%		7.74%		4.91%
     7/1/2020	12.82%	9.83%	22.65%		7.75%		5.07%
     7/1/2021	13.16%	11.80%	24.96%		7.78%		5.38%
     7/1/2022	13.15%	12.24%	25.39%		7.77%		5.38%
     7/1/2023	13.70%	10.83%	24.53%		7.77%		5.93%

   • Source: State statutes; FCC data; local ordinances; and author calculations.
8. Q: Excise taxes were the principal taxes levied in the United States for the first 100 years or so after the Revolutionary War. Today, excise taxes fall mainly on cigarettes, liquor, gasoline, and telephone and wireless data services. What do all of these products seem to have in common?
9. Norway, An Oil-Producing Nation with an Incentive NOT to Drive? Norway’s Oil Wealth and Transportation Choices
   • Discuss, Sales Taxes and Their Impact on Low-Income Households
10. Garbage tax?  Economic Policy and its Unintended Consequences in South Norfolk
11. “Vedio Break Time!!!”
    • Let’s discuss which sales are more enticing and why. How does this relate to elasticity? For example:
      • This advertisement for Chipotle. Ask students if this ad is effective in persuading them to purchase food at Chipotle. https://www.youtube.com/watch?v=BkXHqihY4RE
      • This advertisement for McDonald’s. Ask students to compare it to the Chipotle commercial. Which is more enticing and why? https://www.youtube.com/watch?v=6mx0t0ex7y8