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 © John Tribe 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? © John Tribe Trends in work and leisure: A leisure society? • Joffre Dumazedier (1967): The Leisure Society • Have we become a Leisure Society? • Space Tourism © John Tribe 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. © John Tribe 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.) © John Tribe 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. © John Tribe A leisure society? • "money rich, time poor" – The Overworked American. – TINS (Two Incomes No Sex) © John Tribe 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. © John Tribe Price elasticity of demand • Definition: Percentage change in quantity demanded ÷ Percentage change in price © John Tribe © John Tribe 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 © John Tribe 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 © John Tribe 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. © John Tribe 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 © John Tribe 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. © John Tribe Demand forecasting • Methods for forecasting demand (Frechtling, 2001) include: – naive forecasting – qualitative forecasts – time-series extrapolation – surveys – Delphi technique – models © John Tribe 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. © John Tribe 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. © John Tribe 4 Demand for leisure, elasticity and forecasting: The End © John Tribe