Thursday, December 30, 2010

Changing Elasticity, Substitution & Income Effects

There is a very good article (free content at this writing) in today's issue of The Wall Street Journal. It should have high interest for students, given the subject matter and it is loaded with applications for micro concepts and even for the micro review before teaching macro.

The article is about declining gross sales for concert tours. There was a significant drop this year.  This may not be surprising.  My guess is that students and teachers would both say that concert prices are highly elastic.  Given the times, it would only seem logical that ticket sales would drop.  However, early in the article there is a statement that grosses had increased each of the last eight years. That includes 2008 and 2009. The statement goes on to say that the number of tickets sold held roughly even despite rising ticket prices.  That would indicate characteristics of a good that is highly inelastic. 

We know that elasticity can change.  But we can go into the reasons for the change.  The article gives us room to pursue both income effects and substitution effects. Of particular interest is the idea that older groups tend to be bigger draws than newer groups. Given the possible fan base, this would seem to indicate that it is people with more disposable income that are buying the tickets. That does not mean that only older fans go to see older groups, or that younger acts don't attract older fans, but there may be factors to consider in a discussion.

The article also has some useful graphics, a slideshow, and a video (downloadable) to accompany it.  I suggest you give it a look.

1 comment:

Corinne.W said...

Personally I'm really happy to see that they are taking action to lower ticket prices because they were getting out of hand. I tried to look up concert tickets for an upcoming concert and the worst seats in the house were still around $80! Maybe now I can go enjoy some concerts without having to break the bank to go see them! They mentioned in the article that older bands are still going strong in the concert department and I totally believe that statement. I think it has something to do with the age group they attract because they would be getting adults in their 40s and 50s who probably have stable incomes, where as concerts put on by newer artists are attracting teenagers and people in their 20s who are in high school and just getting out of college and can't afford to see their favorite people perform when tickets are no less then $80 (like me). If they have to lower the cost of their tickets then I think that is definitely a smart move because what they lose in individual profit they will gain back in overall profit. They're not going to make as much money off of one person as they did before, but the lower price is going to attract more people to come see the shows than last year did so they'll make more money that way. Either way they're still making a boat load more money than any of us so don't worry about it young artists. You'll get by fine.