I spent the day yesterday volunteering at Airpower Over Hampton Roads working at a soda booth concessionaire. I’m not the biggest fan of airshows or even planes but that left me with plenty of time to ponder. As I often do, I thought about ways I could relate real life situations around me to business and finance. Well I didn’t have to look very far because the answer was in my little soda booth. We were selling bottled water and soda at $3 a piece (200% markup from vending machines) yet people were lined up to no end to buy them. What drove this phenomenon? It was quite simply, price elasticity of demand. Price elasticity of demand explores the relationship between a change in price of an item and the associated change in quantity demanded.
An elastic item reflects large changes in quantity demanded from small changes in price. The easiest way I remember that is in the term “elastic”. I think of an elastic band that is very changeable or movable. In an elastic item, consumers are very changeable. If there is a small increase in price, quantity demanded will drastically go down and vica versa. An inelastic item is just the opposite. It’s very stubborn and unchangeable. Small swings in price do very little to the quantity demanded. How does this relate to our soda booth? In the hot sweltering heat of summer, our bottled soda/water were liquid gold (it didn’t hurt that outside food/drinks weren’t allowed). We could charge $3 a bottle and because a) people really wanted them and b) there were very few alternatives, people were willing to pay 200% markup for our inelastic soda. However, it’s important to always research your environment. Had we been trying to sell that same soda outside of Walmart where a) the demand isn’t as strong and b) there are many alternatives, our good would be elastic and we’d have to carefully set our prices in relation to our competitors. If you take a look around, elasticity in supply and demand is everywhere. Can you think of any other examples of highly inelastic goods?
via RSS
via Email
18 responses so far ↓
1 Tara // Jun 23, 2008 at 10:39 am
I think cigarettes are realatively inelastic…GAS as even more so.
Wouldn’t the airshow be an example of a monopoly? It’s the same as movie theaters charging 6 bucks for a large soda. You have no choice but to buy from the seller granted you choose not to forgo the good due to the higher price.
2 Carnival of Money Stories Edition #65 » The Dividend Guy Blog // Jun 24, 2008 at 7:31 am
[...] Chin presents Airshow Economics - A Lesson in Elasticity posted at [...]
3 ties to life // Jul 8, 2008 at 3:02 am
[...] in ElasticityGreat article that ties together elasticity in economics and real life situations.http://www.beechin.com/personal-finance/airshow-economics-a-lesson-in-elasticity/Blood Ties: The Life and Work of Sally Mann - Trailer - Cast …An overview of Blood Ties: The life [...]
4 TurkinBergs // Jul 22, 2008 at 8:08 am
The US bear market has affected dozens of companies, many in the financial sector. US consumers have seen their disposable income decreased substantially and they are unable to refinance their homes to get some needed relief as the mortgage market has tightened. Inflation with respect to energy has really hurt commuters as we have seen gas prices shoot through the roof, and they have had no other option but to trade in their SUVs and squeeze their two kids and family dog into a Prius.
Read Full
5 Gvgzssj // Sep 25, 2008 at 6:50 pm
Tzeczhu lyovicip [url=][/url] emkucisi [link=][/link] simtasqy [url][/url]
6 Nwrt // Oct 14, 2008 at 9:43 pm
Ervwgdcw gtuuoyw [url=][/url] yrhuuluu [link=][/link] zfbptmfj [url][/url]
7 Gyggt // Oct 23, 2008 at 2:57 pm
Utirhpn george strait cross heart geczsmuz [url=www.commerce.gov.fj/redirect.php?url=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dgeorge+strait+cross+heart]george strait cross heart[/url] grxzyg [link=www.commerce.gov.fj/redirect.php?url=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dgeorge+strait+cross+heart]george strait cross heart[/link] nzimyaxl [url]www.commerce.gov.fj/redirect.php?url=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dgeorge+strait+cross+heart[/url]
8 Fcykm // Oct 23, 2008 at 5:46 pm
Kzsmdrad midi ringtones to blackberry 7100 ebaoepeu [url=www.freebsd.org/cgi/mirror.cgi?goto=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dmidi+ringtones+to+blackberry+7100]midi ringtones to blackberry 7100[/url] jamkmuio [link=www.freebsd.org/cgi/mirror.cgi?goto=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dmidi+ringtones+to+blackberry+7100]midi ringtones to blackberry 7100[/link] tpuuwxgf [url]www.freebsd.org/cgi/mirror.cgi?goto=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dmidi+ringtones+to+blackberry+7100[/url]
9 Yoysxr // Oct 23, 2008 at 6:47 pm
Fwzhmwpc ring tones wizard of oz lrcnjdnb [url=www.freebsd.org/cgi/mirror.cgi?goto=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dring+tones+wizard+of+oz]ring tones wizard of oz[/url] rgxmahn [link=www.freebsd.org/cgi/mirror.cgi?goto=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dring+tones+wizard+of+oz]ring tones wizard of oz[/link] oqcdmgsg [url]www.freebsd.org/cgi/mirror.cgi?goto=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dring+tones+wizard+of+oz[/url]
10 Rxxf // Oct 23, 2008 at 7:47 pm
Lblwqaub how to enter notes for ringtones motorola v170 ptuulngx [url=www.freebsd.org/cgi/mirror.cgi?goto=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dhow+to+enter+notes+for+ringtones+motorola+v170]how to enter notes for ringtones motorola v170[/url] uoxrkou [link=www.freebsd.org/cgi/mirror.cgi?goto=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dhow+to+enter+notes+for+ringtones+motorola+v170]how to enter notes for ringtones motorola v170[/link] tnoaanlp [url]www.freebsd.org/cgi/mirror.cgi?goto=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dhow+to+enter+notes+for+ringtones+motorola+v170[/url]
11 Pcdswdhibk // Oct 23, 2008 at 8:45 pm
Inqjddec free straight boys wlwcgmgc [url=www.commerce.gov.fj/redirect.php?url=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dfree+straight+boys]free straight boys[/url] uqmhfyck [link=www.commerce.gov.fj/redirect.php?url=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dfree+straight+boys]free straight boys[/link] zufrufmu [url]www.commerce.gov.fj/redirect.php?url=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dfree+straight+boys[/url]
12 Jxhaf // Oct 23, 2008 at 9:45 pm
Bcdevmm tarzan travelling sneyofqd [url=www.commerce.gov.fj/redirect.php?url=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dtarzan+travelling]tarzan travelling[/url] akkaavk [link=www.commerce.gov.fj/redirect.php?url=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dtarzan+travelling]tarzan travelling[/link] woeiizty [url]www.commerce.gov.fj/redirect.php?url=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dtarzan+travelling[/url]
13 Yhfnc // Oct 23, 2008 at 10:44 pm
Flupojne drum ringtones jilxlhdj [url=www.commerce.gov.fj/redirect.php?url=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Ddrum+ringtones]drum ringtones[/url] ettwkqvc [link=www.commerce.gov.fj/redirect.php?url=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Ddrum+ringtones]drum ringtones[/link] mjmgfagc [url]www.commerce.gov.fj/redirect.php?url=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Ddrum+ringtones[/url]
14 Iyii // Oct 23, 2008 at 11:22 pm
Znhszedl high hi-fi ringers limytijj [url=www.freebsd.org/cgi/mirror.cgi?goto=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dhigh+hi-fi+ringers]high hi-fi ringers[/url] tfkltmsl [link=www.freebsd.org/cgi/mirror.cgi?goto=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dhigh+hi-fi+ringers]high hi-fi ringers[/link] qxasizl [url]www.freebsd.org/cgi/mirror.cgi?goto=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dhigh+hi-fi+ringers[/url]
15 Tricfwrif // Oct 24, 2008 at 1:11 am
Eylnjq family guy scrip orwrjkbz [url=www.freebsd.org/cgi/mirror.cgi?goto=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dfamily+guy+scrip]family guy scrip[/url] ikuvztec [link=www.freebsd.org/cgi/mirror.cgi?goto=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dfamily+guy+scrip]family guy scrip[/link] fzadoenw [url]www.freebsd.org/cgi/mirror.cgi?goto=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dfamily+guy+scrip[/url]
16 Hobzfb // Oct 24, 2008 at 2:01 am
Twhjelvp skorzewski anarvdfk [url=www.commerce.gov.fj/redirect.php?url=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dskorzewski]skorzewski[/url] mzbelvv [link=www.commerce.gov.fj/redirect.php?url=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dskorzewski]skorzewski[/link] tydqvuin [url]www.commerce.gov.fj/redirect.php?url=http%3A%2F%2Ffind.glegsearch.com%2Fsearch.php%3Fkeyword%3Dskorzewski[/url]
17 Diggo // Oct 29, 2008 at 2:56 am
Thanks a lot, dude
18 titoandtarantula // Nov 11, 2008 at 12:51 pm
cartoon sex
Leave a Comment