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Chapter 4 Further Issues of Demand and Supply Further Issues of Demand and Supply 2012 Taylor & Francis

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Learning Outcomes By the end of this section students will be able to: evaluate the work/leisure trade-off evaluate the notion of a leisure society understand and apply the concept of price elasticity of demand understand and apply the concept of income elasticity of demand understand and apply the concept of cross price elasticity of demand describe simple methods of demand forecasting evaluate techniques of demand forecasting By the end of this section students will be able to: evaluate the work/leisure trade-off evaluate the notion of a leisure society understand and apply the concept of price elasticity of demand understand and apply the concept of income elasticity of demand understand and apply the concept of cross price elasticity of demand describe simple methods of demand forecasting evaluate techniques of demand forecasting 2012 Taylor & Francis

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The demand for leisure Two potential effects of an increase in income on the demand for leisure time: The substitution effect: First, an increase in income means an increase in the opportunity cost of leisure time. In this case we may expect consumers to demand less leisure time. The income effect: Leisure time can be classed as a normal service, and in common with other normal goods and services, as income increases more will be demanded. Choice or rigidity? 2012 Taylor & Francis

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Trends in work and leisure: A leisure society? Joffre Dumazedier (1967): The Leisure Society Have we become a Leisure Society? Space Tourism 2012 Taylor & Francis

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A leisure society? Certainly in the developed world the opportunities for leisure have never been better, fuelled by rising incomes, technological advances and a dazzling array of new products. 2012 Taylor & Francis

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A leisure society? But there are several paradoxes surrounding the Leisure Society. The first concerns leisure as a social activity The cinema at least provides an opportunity for social interaction in leisure. But there are also signs of a retreat from leisure as a social activity to that of a solitary one. 2012 Taylor & Francis

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A leisure society? A Leisure Society also suggests leisure for all but First there is that of involuntary leisure. Unemployment has remained obstinately high in many parts of Europe. Second for large populations in many parts of the world, working conditions are harsh, pay is low and paid holidays are uncommon. 2012 Taylor & Francis

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A leisure society? Money rich, time poor The Overworked American. TINS (Two Incomes No Sex) 2012 Taylor & Francis

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A leisure society? Steady increase of working women Linders (1970) The Harried Leisure Class Homogenisation of leisure Do not appear to be a Society at Leisure Work remarkably hard but now play hard too. 2012 Taylor & Francis

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Price elasticity of demand Definition: Percentage change in quantity demanded Percentage change in price 2012 Taylor & Francis

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Price elasticity of demand Factors affecting price elasticity of demand necessity of good or service number of substitutes addictiveness price and usefulness time period consumer awareness Elasticity of demand and total revenue 2012 Taylor & Francis

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Price elasticity of demand Which of these would you expect to demonstrate more inelastic demand? RipCurl (name brand, few close substitutes) whereas many substitutes for AVIS car hire 2012 Taylor & Francis

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Income elasticity of demand Definition Percentage change in quantity demanded Percentage change in income Calculation of income elasticity of demand enables an organization to determine whether its goods and services are normal or inferior 2012 Taylor & Francis

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Income elasticity of demand The Hotel Biltmore, Bondi Beach, NSW LA Fitness UK Health Club Which of these has positive and which negative income elasticity of demand? LAF = Positive Biltmore = Negative 2012 Taylor & Francis

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Cross-price elasticity of demand Definition Percentage change in quantity demanded of good A Percentage change in price of good B Cross-price elasticity of demand measures the relationship between different goods and services. It therefore reveals whether goods are substitutes, complements or unrelated 2012 Taylor & Francis

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Demand forecasting Methods for forecasting demand (Frechtling, 2001) include: naive forecasting qualitative forecasts time-series extrapolation surveys Delphi technique models 2012 Taylor & Francis

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Review of key terms Income effect change in demand caused by change in income. Substitution effect change in demand caused by change in relative prices. Price elasticity of demand the responsiveness of demand to a change in price. Inelastic demand demand is unresponsive to a change in price. Elastic demand demand is responsive to a change in price. Income elasticity of demand the responsiveness of demand to a change in income. 2012 Taylor & Francis

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Review of key terms Cross-price elasticity of demand the responsiveness of demand for one good to a change in the price of another good. Time series a set of data collected regularly over a period of time. Seasonal variation regular pattern of demand changes apparent at different times of year. Extrapolation extending time-series data into the future based on trend. Delphi technique finding consensus view of experts. 2012 Taylor & Francis