Problem Focused Exercise: high fashion at low prices – too good a chance?
1
The Scenario
On 10 November 2005 a limited number of clothes designed by Stella
McCartney went on sale at 25 H&M fashion stores across the UK. Her clothes
normally retail for hundreds and even thousands of pounds, but the maximum
price for these garments was £100. This exercise examines the economic
consequences of such actions and asks if this is in the interests of consumers.
Task 1
Read the following extract and then answer the questions below.
(a) What were the outcomes of the decision to sell these clothes in this
way?
(b) Explain how economics could have predicted the important outcomes
you have considered in (a).
As part of your explanation:
 use the concepts of equilibrium and disequilibrium,
 draw an appropriate diagram.
(c) Is this a good way of determining who gets these clothes?
(Economists call this the method of allocation.) Compare this to using
the market (price) mechanism.
feedback page 3
Task 2
Think of other goods or services where the market is not at equilibrium at the
ticketed price. What allocation mechanisms are used? Are there any
pressures upwards towards the equilibrium price as predicted by economic
theory in these markets?
feedback page 4
Copyright: Embedding Threshold Concepts Project
06/10/08
This project is funded by the Higher Education Funding Council for England (HEFCE) and the Department for
Employment and Learning (DEL) under the Fund for the Development of Teaching and Learning.
Problem Focused Exercise: high fashion at low prices – too good a chance?
2
McCartney creations lead to mayhem
Based on: McCartney designs fly off shelf and onto eBay
The Guardian, Saturday 12 November 2005 by Audrey Gillan
It started with Stella McCartney selling
designer clothes for sale through H&M
in November 2005. Nothing in
McCartney's one-off autumn
collection was priced at more than
£100 and thousands flocked to the
high street chain to buy panelled
dresses at £60 and skinny jeans at £40,
by a designer whose creations can
cost thousands. There was a limited
number of each item on offer and
they were sold out within hours of
going on sale.
because they were being mauled and
were surprisingly good natured when
people pulled stuff right out of their
hands."
Shoppers queued and elbowed each
other out of the way as they strove to
buy. However, many of those
shoppers didn't actually want to wear
the highly coveted creations
themselves; instead, they intended to
sell them on internet auction sites at a
massive profit.
She went on to say: "I came straight
from the start of the sale and looked
on eBay, and within an hour people
were selling. It just made me laugh
because it's what you expect
nowadays. I'd rather be passing any
stuff I don't want on to friends rather
than making a quick buck out of it."
The Guardian quoted shopper Davina
Joseph, who had queued at the
London Oxford Circus store for three
and half hours before getting sight of
the McCartney designs. She said: "It
was mayhem. People were scooping
up handfuls of clothes, paying no
attention to the size, manically
grabbing things, fighting, pushing and
shoving. When I asked a girl if she
needed all the items she said she
would be selling the ones that didn't fit
on eBay.”
By Friday there were indeed a large
number of the creations up for auction
on Ebay. Stella emblazoned T-shirts
were selling at £59 on the site – the
original price tag was £15). Other items
included a black tuxedo jacket which
was posted with a mark up of £15
above the H&M price, while a trench
coat was selling with a mark up of £42.
A second shopper, this time at H&M's
West London store in Kensington, was
quoted as saying: "Someone had
plonked a toddler on a bench and
was filling up her pram with clothes.
People were pulling stuff off the rails
and then looking at them frantically to
see if they were the right size.”
Since several designers have followed
suit – but is this really in the interests of
consumers?
She went on to say “I was really
irritated by that. It was like a one-off
offer where normal people can get a
little piece of luxury. And instead these
people are trying to profit at the
expense of ordinary shoppers. I felt
really sorry for the shop assistants
Copyright: Embedding Threshold Concepts Project
06/10/08
This project is funded by the Higher Education Funding Council for England (HEFCE) and the Department for
Employment and Learning (DEL) under the Fund for the Development of Teaching and Learning.
Problem Focused Exercise: high fashion at low prices – too good a chance?
3
Feedback Task 1
(a) What are the main outcomes described: queuing, disorderly crowds, reselling on
eBay. Some people did get bargains, but not everybody who wanted them.
(b) How does economics start examining questions such as this one?
The article is concerned with the demand, price and amount supplied. We start by
considering the standard demand and supply model and then adjust it to this case.
How do we need to adjust the model?
* Firstly, we are told the quantity to be sold is a fixed amount. This means we draw
the supply curve as vertical as in the diagram below rather than the normal
upward sloping curve. The distance along the horizontal axis is the amount
supplied.
* Secondly, we are told prices have been fixed below normal prices. In economics
we refer to this as a disequilibrium price. We draw the fixed price onto the
diagram at a price below where demand = supply.
Price
Fixed
supply
£
We have chosen a fixed
quantity of 95 items at a fixed
price of £80 for illustration.
Equilibrium 240
Price
Fixed Price
80
Disequilibrium
Excess demand
Demand
Quantity
95
240
How do we use this model to predict the outcomes in the article?
The diagram shows there is excess demand at the price of £80 of 145 (95 to 240). If
goods are sold using the price mechanism, prices (and quantities) will adjust to the
equilibrium level where demand equals supply and in this case prices will rise. But
prices have been fixed and who gets the items is determined by other mechanisms –
the queuing outside the shop for hours and the scrimmage inside. However, if there
is excess demand there will also be strong pressures towards this equilibrium and this
is illustrated by the re-selling of some of the goods on e-Bay at a higher price. The
profit motive provides an incentive for doing this.
(c) Some people bought clothes they were very pleased with – a bargain – but not
everyone got what they wanted. The items did not all go to people who most
appreciated them and will wear them. There were disadvantages such as queuing
(and the time involved) and the rude treatment of staff in using this approach. It also
led to some people reselling to make a profit for themselves. An advantage of the
price mechanism is that people can choose what they most want to buy depending
on their preferences and the prices they are faced with; the disadvantage is that
this is limited by their income.
Copyright: Embedding Threshold Concepts Project
21/08/07
This project is funded by the Higher Education Funding Council for England (HEFCE) and the Department for Employment and
Learning (DEL) under the Fund for the Development of Teaching and Learning.
Problem Focused Exercise: high fashion at low prices – too good a chance?
4
Feedback Task 2
Below are a number of examples, but you may have thought of different
ones.
Some of the easiest examples to think of are where stadia have a fixed
capacity, for instance:
* a successful premier league football club. Tickets may be allocated on the
basis of club membership, of first come-first served, a ballot, through proof
of attendance at other (less popular) matches, etc.
* a concert of a well-known band. Generally these will be on a first come-first
served basis and may involve queuing.
The upward pressure on prices is shown on the ‘black market’ for tickets at
such events by ‘ticket touts’.
The same mechanisms do occur, however, on a small scale on a daily level.
If bus ticket prices do not rise as secondary school children leave school,
there may be excess demand for buses for a short while. This may lead to less
comfort on the journey in an overcrowded bus and/or to queuing for longer –
if demand is too high some will have to catch the next bus.
Reflection
1.
2.
3.
Yes
Partly No
Do you understand why the supply curve does not
shift in this scenario?
Do you understand why economists expect to see a
black market to emerge in such situations?
Do you understand why economists don’t
necessarily regard the black market as ‘a bad
thing’?
Copyright: Embedding Threshold Concepts Project
21/08/07
This project is funded by the Higher Education Funding Council for England (HEFCE) and the Department for Employment and
Learning (DEL) under the Fund for the Development of Teaching and Learning.
Problem Focused Exercise: high fashion at low prices – too good a chance?
5
Notes for lecturers
Objectives of the exercise and prerequisites
This exercise presents a scenario students may have heard/read about in the
media and we have found it does generate lively discussion.
Learning Focus: Understanding the concept of equilibrium and the importance of
this in analysing what happens in disequilibrium. Using demand and supply analysis.
The Threshold Concepts that are pivotal to this learning are the modelling concept
of equilibrium and incentives.
Prior Knowledge Required
Students need to have had an introduction to demand and supply analysis.
Sequencing and timing
1.
Task 1 asks students to read the extract and then answer three questions.
The task can be carried out on an individual basis but students may
benefit from working in groups. Students can be asked to give a
presentation of their findings to encourage participation (this can be
certain selected groups rather than all, in order to fit the time
scheduling).
2.
It is possible to set task 1 without task 2. Task 2 asks students to apply their
findings to other markets. We have found that students relate to task 2
and this generates interesting examples. The feedback to section 1
should be distributed before attempting this.
3.
The complete exercise is likely to take 30 minutes, without any group
presentations.
Copyright: Embedding Threshold Concepts Project
21/08/07
This project is funded by the Higher Education Funding Council for England (HEFCE) and the Department for Employment and
Learning (DEL) under the Fund for the Development of Teaching and Learning.