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Chapter 4
Further Issues of
Demand and Supply
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By 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
Learning Outcomes
© 2012 Taylor & Francis
© 2012 Taylor & Francis
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?
The demand for leisure
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 Joffre Dumazedier (1967): The Leisure Society
 Have we become a Leisure Society?
 Space Tourism
Trends in work and leisure: A leisure society?
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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.
A leisure society?
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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.
A leisure society?
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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.
A leisure society?
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‘Money rich, time poor’
The Overworked American.
TINS (Two Incomes No Sex)
A leisure society?
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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.
A leisure society?
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Definition: Percentage change in quantity
demanded ÷ Percentage change in price
Price elasticity of demand
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© 2012 Taylor & Francis
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
Price elasticity of demand
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Which of these would you expect
to demonstrate more inelastic
demand?
RipCurl (name brand, few
close substitutes) whereas
many substitutes for AVIS car
hire
Price elasticity of demand
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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
Income elasticity of demand
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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
Income elasticity of demand
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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
Cross-price elasticity of demand
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Methods for forecasting demand (Frechtling, 2001) include:
naive forecasting
qualitative forecasts
time-series extrapolation
surveys
Delphi technique
models
Demand forecasting
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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.
Review of key terms
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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.
Review of key terms
© 2012 Taylor & Francis