Saturday, June 4, 2016

Beer prices at Atlanta Falcons games are going down 37.5%. I predict problems will increase by more than that...

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?

GDP and Water...

Found this on Twitter so it must be true...

If true, it is interesting that 50% (about $9 Trillion dollars) of GDP is produced in concentrated areas close to ports/water.  Historical patterns of trade are hard to break I guess could be an observation.

What do you see?

TSA-Pre Checks --- Quantity Demanded vs Change in Demand

Bloomberg has an article on TSA Pre-checks that provides another good example to illustrate a basic yet difficult to grasp Microeconomic concept: the difference between a change in Quantity Demanded when there is a change in price and a change in demand when something other than a change in price affects the market. Got that?
"""...The agency’s Pre-Check program is designed to fix that problem and move the lines—but only 2.77 million people have enrolled to date, far below projections. The TSA wants to have 25 million people signed up by 2019 for federal “trusted traveler” programs such as PreCheck, for domestic travel, and Global Entry, the program for international travelers run by the U.S. Customs and Border Protection.
"""...But according to the U.S. Travel Association, a lower fee and simpler application process would spur 7 million more people to enroll in the PreCheck program. In a statement Thursday, the group based its claim on a survey of 1,000 domestic travelers conducted March 7-10. Of the 1,000 people, 20.5 percent said they would likely enroll in PreCheck. Among the rest, half cited the $85 fee as the reason they would probably not enroll...."---(bold and underline are mine).
Let's take both of the claims made in the first sentence of this last paragraph, separately and then together, to see how this plays out on a market demand curve.

If you are reading this while standing in line to get through airport security, I hope it makes the wait more satisfying.  :)
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