Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Basic but Tricky Econ. Question

with 6 comments

Question: A survey shows that on average 100 people go to the movies when the price is $6 and 300 people go when the price is $9.  Does this violate the laws of supply and demand?

Any idea?

Written by Nicolas Petit

25 February 2010 at 7:00 am

Posted in Uncategorized

6 Responses

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  1. Better films attract more people, regardless of ticket prices?

    Philipp Werner

    25 February 2010 at 10:19 am

  2. It looks that the $9-movie is perceived by consumers as a superior product than the $6-movie (there is no direct substitutability). Such a situation would seem to violate law of s&d only if ceteris paribus condition was satisfied.

    Mikolaj

    25 February 2010 at 10:25 am

  3. It’s called a giffen good defined as a goods which people consume more of as price rises.

    See further on

    http://en.wikipedia.org/wiki/Giffen_good

    Christian Bergqvist

    25 February 2010 at 2:37 pm

  4. In my opinion, the higher price could be explained by the fact that there is more demand at certain periods (e.g., during the weekend). Given that offer remains the same and demand increases, the price rises.

    John

    26 February 2010 at 11:50 am

  5. Seems key days and new releases are a reasonable explanation. Movie tickets don’t match well with the wiki explanation of a Giffin good.

    Also, note that the question gives no time scope.

    Allan L

    1 March 2010 at 12:23 am

  6. The survey presumably aggregates across different movies and different times of day. So, the averages are actually composed of different products.

    So, no, it does not violate the laws of supply and demand.

    A Giffen good, if I remember rightly, is one that is so strongly consumed by poor people that a rise in its price reduces real incomes so much that some consumers have to substitute away from more luxurious purchases. So, I’m poor: I eat mostly potatoes and a little meat. The price of potatoes goes up. To get enough calories within my budget, I have to give up buying the meat so I just eat potatoes.

    It is inconceivable that movie-going has such a strong income effect as that.

    Fruitbat

    29 April 2010 at 1:44 pm


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