Transcript 4 Demand for leisure, elasticity and forecasting

4 Demand for
leisure, elasticity
and forecasting
© John Tribe
© John Tribe
Learning outcomes
By studying 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
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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?
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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
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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.
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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.
– Danni's Hard Drive (a porn website) had a gross
turnover of $3.5 millions in 1998 and 5 million hits
per day.)
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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.
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A leisure society?
• "money rich, time poor"
– The Overworked American.
– TINS (Two Incomes No Sex)
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A leisure society?
• steady increase of working women
• Linder’s (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.
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Price elasticity of demand
• Definition: Percentage change in quantity
demanded ÷ Percentage change in price
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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
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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
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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.
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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
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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.
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Demand forecasting
• Methods for forecasting demand
(Frechtling, 2001) include:
– naive forecasting
– qualitative forecasts
– time-series extrapolation
– surveys
– Delphi technique
– models
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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.
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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.
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4 Demand for
leisure, elasticity
and forecasting:
The End
© John Tribe