BUS 529 Stanford University Price Elasticity of Demand & Streaming Services Questions

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BUS529 Real Case Application Set A Microeconomic Model: Supply and Demand The following real case examples relate to different product markets during different time periods of the pandemic. These are just a sample of events. For each market, translate the listed events into the nonprice components of Demand and/or Supply. For example, in each market answer the following: Other things held constant, Demand shifted (left/right) because of the nonprice determinant __________ Other things held constant, Supply shifted (left/right) because of the nonprice determinant __________ Part 1. Pandemic A. Oil Market Saudi Arabia and Russia dispute over excess oil production levels and Saudi Arabia increases oil production. Major economies are in lockdown. B. Gasoline market. Refer to the scenario in A. Also, Oil is an input to gasoline. C. Airline Travel Market Fears of the pandemic reach the U.S. by March. Oil prices decline. Increase in sanitation efforts by airlines. D. Face Masks Market Face masks become part of recommended protection. Cottage industries (at home production) develop. Clothing manufacturers reduce production of business attire and athletic uniforms and increase production of face masks E. In Home Office equipment/electronics in March versus April. In March most individuals make move to remote and work from home. Part 2. Price Ceilings (laws and reputation) and shortages A. Residential TP Market vs Commercial Toilet Paper Market and Overall TP Market Shelter in place order goes into effect. Only essential businesses are open. Fun facts 99% of tissue products manufactured in U.S. Manufacturing in remote areas Grocery stores and retailor inventory (2-3 weeks) 2 markets for TP Consumer households (small softer varieties) Commercial (thin large rolls in various restrooms restaurants office buildings) Data from Georgia-Pacific, maker of the Angel Soft and Quilted Northern brands, shows that the average American household — 2.6 people — uses about 409 rolls of toilet paper a year. The company estimates that people will use about 40% more toilet paper than usual if they spend all their time at home during the pandemic. https://cnr.ncsu.edu/news/2020/05/coronavirus-toilet-paper-shortage/ https://marker.medium.com/what-everyones-getting-wrong-about-the-toilet-papershortage-c812e1358fe0 B. PPE Market COVID Cases increase at hospitals. A reduction of availability of melt blown fabric for PPE from China. C. Ventilator Market Continued increases in COVID cases arriving in hospitals. Ford and GM production lines shift from autos to ventilators due to Defense Production Act. In other companies, innovative technologies of portable ventilators increases. If price does not distribute by willingness and ability – what is best distribution method? https://freakonomics.com/podcast/covid-19-ventilators/ Part 3. A. Which shifts (S or D) was greater in each market determines direction of equilibrium price change or size of shortage. Is the COVID-19 Pandemic a Supply or a Demand Shock? | St. Louis Fed B. What happens to the industries in the long run. What are suppliers’ future expectations. Are consumer changes permanent or temporary? BUS529 Real Case Application Set B Part 1A Interpreting Elasticity Measurements 1. Explain the difference in the income elasticity of Demand for extractions and orthodontics 2. Explain why the (own) price elasticities of Demand for alcohol and local bus travel different in the short run and long run. 3. Based on the cross price elasticity of Demand for beef and pork, are these goods substitutes or complements?How does it compare to relationship of butter and margarine? Part 2 Pandemic Effects on Elasticity 2A. Price Elasticity of Demand and Streaming Services Mark Billige, CEO of Simon-Kucher & Partners, said, “… For the past three years, the calculated price elasticity for a Netflix subscription was approximately -0.6. But in our June study, we saw elasticity … -0.13.” https://www.consultancy.uk/news/24986/covid-19-presents-netflix-with-chance-to-hike-prices Over the past three years, was Netflix elastic or inelastic? In June, was Netflix elastic or inelastic? According to these estimates, if Netflix increased prices by 15% in June 2019, by what percentage would quantity demand change by and in what direction? Would Total revenue increase or decrease? According to these estimates, if Netflix increased prices by 15% in June 2020, by what percentage would quantity demand change by and in what direction? Would Total Revenue increase or decrease? Refer to the additional information collected from consumers of streaming services. Does this match one or more of the characteristics related to elasticity? Explain. “When asked to rank the most important criteria for choosing between different streaming services, breadth of content available and access to latest releases were the first and second most important criteria, whereas price was only fourth in importance. This suggests that Netflix would have room to raise its prices, and still rely on strong sales volumes – though Billige cautioned against ramping up prices without due care. “While we would need to conduct a more representative study before making any concrete recommendations on optimal prices, these results send a very positive message to streaming providers. Consumers are currently having a crash course in what they can (or can’t) live without. And streaming services are definitely in the ‘can’t live without’ bucket,” he added.” 2B Price Elasticity of Supply and Face Masks January 2020 50 facemasks per box selling at a Price of $10/box Total global production= 20 million boxes/day China 50 % global production March 2020 50 face masks per box selling at Price of $55/box China global production increased to 116 million boxes /day http://www.oecd.org/coronavirus/policy-responses/the-face-mask-global-value-chain-in-the-covid-19outbreak-evidence-and-policy-lessons-a4df866d/ Calculate the price elasticity of Supply for China in the Short run. New suppliers have entered the market since then. What is the elasticity like with respect to the long run (over a year) supply curve of masks. 1. Remote work has increased over the past years. Retailers report shirts and pants that were typically complements are selling more independently with shirts outpacing pants. Which elasticity would this effect and would it be farther or closer to zero today than prior to the pandemic? https://www.usatoday.com/story/money/2020/03/28/coronavirus-walmart-sees-increased-salesshirts-not-pants/2932455001/
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1

Real Case Application Set A

Student's Name
Institution
Course
Instructor
Date

2
Real Case Application Set A
Part 1. Pandemic
A. Oil Market
Saudi Arabia and Russia dispute over excess oil production levels and Saudi Arabia
increases oil production. Major economies are in lockdown.

Other things held constant, Demand shifted left because of the nonprice determinant
Other things held constant, Supply shifted right because of the nonprice determinant

B. Gasoline market. Refer to the scenario in A. Also, Oil is an input to gasoline.

Other things held constant, Demand shifted left because of the nonprice determinant
Other things held constant, Supply shifted right because of the nonprice determinant

C. Airline Travel Market
Fears of the pandemic reach the U.S. by March. Oil prices decline. Increase in sanitation
efforts by airlines.

Other things held constant, Demand shifted left because of the nonprice determinant
Other things held constant, Supply shifted right because of the nonprice determinant

D. Face Masks Market

3
Face masks become part of recommended protection. Cottage industries (at home
production) develop. Clothing manufacturers reduce production of business attire and
athletic uniforms and increase production of face masks

Other things held constant, Demand shifted right because of the nonprice determinant
Other things held constant, Supply shifted right because of the nonprice determinant

E. In Home Office equipment/electronics in March versus April.
In March most individuals make move to remote and work from home.
Other things held constant, Demand shifted left because of the nonprice determinant
Other things held constant, Supply shifted right because of the nonprice determinant
Part 2. Price Ceilings (laws and reputation) and shortages
A. Residential TP Market vs Commercial Toilet Paper Market and Overall TP Market
Shelter in place order goes into effect. Only essential businesses are open.

Fun facts 99% of tissue products manufactured in U.S.
Manufacturing in remote areas
Grocery stores and retailor inventory (2-3 weeks)
2 markets for TP
Consumer househo...


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