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Well, does it? This is an interesting, and short, podcast from Freakonomics about the odd effects that this recession has had on our waistlines. Some things to consider while listening: What do you think the cross-price elasticity coefficient is like between food and cigarettes? What do you think the income elasticity coefficient is like for cheap food and cigarettes? Which effect do you think matters most in determining how much cheap food we consume - the "income effect" (recession implies lower income) or the "substitution effect" (price of substitutes i.e. cigarettes increasing)?
This Smart Money article talks about how many banks may start charging extra for debit card use. This seems like a pretty bad idea when there are plenty of close substitues for debit cards (anyone remember when we used cash?). Many of these substitutes come with better incentives anyways. This will likely be a great experiment for us though, as we can see what the price-elasticity of demand for debit card use. With your knowledge on the relationship between price-elasticity and total revenue, what do you expect to happen to these banks total revenues following a price increase?
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July 2017
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