The professional football team Atlanta Falcons are opening a new stadium this year and have announced a drastic cut in the price of concessions people can buy. Here is a link to the whole story.
The price of a beer will drop from $8.00 to $5.00. In Microeconomics we know when there is a decrease in the price of a good/service the Quantity Demanded will increase (Law of Demand).
We move along the existing Demand Curve down and to the right (ceterus paribus).
Businesses care about profits. Profits come from Revenues. A decrease in the price of beer from $8 to $5 is a minus 37.5%.
Now, business also care about elasticity of demand---the general slope of the Demand Curve.
In order for the vendor of beer at the stadium to get the SAME amount of revenue as before there must be, at a minimum, an increase of 37.5% in the quantity demanded for beer.
If it falls short of 37.5%, even though it increased, then Total Revenue will be less than before. Not a good strategy! This would suggest Demand is relatively INELASTIC.
If the quantity demanded is greater than 37.5% then Total Revenue will be greater than before. This would suggest Demand is relatively ELASTIC. A win for the beer vendor!
Anyone see a problem? Does a 37.5% + increase in the flow of beer in a closed stadium pose some "external problems" that are not factored into the price?
On the benign side, more visits to the restroom equals higher sewage/water use.
On the more serious side, well, more drunks and all that entails at a sporting event.
I think alcohol prices should stay high. Not for a personal preference, but for a better social outcome.
What do you think?