PROBLEM 1: Lovin’ the Fast Food

The following article was written for an ag-econ journal several years ago. The demand function is written in table format on the next page. This page has the averages for the different variables and the second page has the regression output.

1. Calculate the fast food price elasticity for fast food for 1982 and 1992. What does it mean? How could Chic-Fil-A use this information? Is it changing?

PEoD = (% Change in Quantity Demanded)/(% Change in Price)

2. Calculate the grocery cross-price elasticity for fast food for 1982 and 1992. What does it mean? How could Chic-Fil-A use this information? Calculate the ‘inexpensive’ and ‘expensive’ restaurant price cross-price elasticity. What do these mean and how useful is this information?

3. Calculate the income elasticity of fast food in 1982 and 1992. Again, explain the trend and meaning.

4. Identify at least four ‘take-aways’ from this demand function. Identify the relationship that is shown (or not shown), what information can be drawn from the information and how a fast-food restaurant can use this. Only one of your ‘take-aways’ here can relate specifically to cross-price elasticities.

Problem 2 Jones Has A Student . . .

Several years ago I had a student who approached me about leaving school. This student had, what he thought, was an amazing idea. Doug’s idea (I’ve changed the name to protect the innocent) was this: move to a medium sized city (Charleston, SC) and open up a jewelry business. His reasoning was that when jewelers resize gold rings (wedding bands), they get to keep the little pieces of scrap gold. As gold was approaching record prices, Doug would make a ton of profit.

a. Draw a graph/figure of the type of market Doug is entering—assume that he makes profits out of the gate.

b. Explain how the market moves given that Doug makes a profit. That is, tell me what is likely to happen. Show a graph (or graphs) that explain this phenomena.

c. How is it possible that firms can operate with zero economic profit? Tell me a story why it must be that the last firm entering the market experiences zero economic profit (i.e. What if the last firm in the market experienced positive economic profit? Is there anything wrong with that?)

Problem 3 Economics is a Curious Thing

Please choose three of the following economic phenomena and give me your reasons why we see these events occur in the market. The more you think like an economist the more you see economics in the market. (Don’t waltz through these as they are all examples of economics.)

a. Why do brides buy their wedding dresses for thousands of dollars while bride-grooms (yes, I’m from Middle-England) rent their tuxedos for a hundred dollars?

b. Why is the internet free at Motel 6 but costs $9.99 per day at the Ritz?

c. Why do ATM machines in the drive-through have brail number pads?

d. Why do airlines give frequent flyers two free checked bags but charge for checked bags for non-frequent flyers?

e. Why did the price of fish decrease and the elasticity of fish increase after Vatican II?

f. Why does Las Vegas offer free drinks to gamblers but charge very high prices to patrons in bars?

g. Why do people spend (on average) three weeks shopping for a car to save $200 yet don’t spend time clipping coupons to save $200 on groceries ?

h. [Your own economic conundrum from veils to veal: List the phenomena and write your own solution.]

Running of the Brides

All About Filene's Basement's Bridal Gown Sale

I'm sure you have seen it on television or at least heard about it - hundreds of women rushing to racks and racks of designer wedding gowns and trying them on in the aisles. I believe they made reference to it on "Friends" a few seasons back when Monica was planning her wedding to Chandler. Remember? All of the brides were running around grabbing dresses off the racks... brides, including Monica, were fighting over gowns...

I really can't remember if that was supposed to be Filene's or another store but it definitely wasn't something that was made for television. It is an actual event, a "wild scene", that has been repeated every year since 1947 at the world famous Filene's Basement in Boston, Atlanta and other cities around the country.

So what is the big deal about this particular bridal gown sale?

According to Filene's Web site , basement buyers accumulate gowns from a variety of sources including manufacturer's samples, overstocks, canceled orders, excess merchandise, etc. Many of the dresses still have their original price tags and may be priced in the thousands. So, when these buyers have accumulated at least 1000 gowns they set a date for the "sale" and price all dresses at $249 each.

The morning of the sale, brides, mothers and friends begin lining up early. Usually by the time the doors open at 8am, hundreds of women are waiting in line. According to the Web site, "when the crowd is let loose, it takes less than 60 seconds for the racks to be stripped bare". Evidently the women just grab as many dresses as they can, go off in a corner, strip down and start trying them on. Then the brides start bartering with each other for dresses until they find the perfect gown (for only $249).

Call me crazy but this sounds fun...and maybe a little dangerous at the same time :-)

Tips For Success

Since this may be something new to you, following are some tips for success from the Filene's Web site and my comments as well:

1. Get there early or get there late.

Evidently, there is a better selection early but less frenzy later.

2. Leave all men at home, but do bring female help.

I imagine it could be strange for men since there will be hundreds of women stripping down right there in the store...

3. Identify your team.

This is quite funny but I imagine it is helpful. The Filene's Web site suggests you and your "team" wear matching colors, hats, etc. (something that will help you find each other in a crowd...)

4. What to wear:

Leotard or sports bra and bike shorts to try on dresses anywhere, sneakers of comfortable shoes...

5. Leave your handbags at home.

Carry your belongings in a fanny pack or have a friend carry them.

6. Think creatively.

Since these dresses are so inexpensive, it may be worth the cost of alterations if the gown you love doesn't fit perfectly.

7. Be open-minded.

Certain dresses look best on certain bodies. Don't pass up a dress just because it isn't what you had in mind - it may look awesome on you!

8. Be courteous.

This is just common sense. Everyone is there for the same thing - to find the perfect dress. If you are nice and help someone out they will be nice and help you - I hope!

9. Be fair.

Again, everyone is there for the same thing. So give up your dresses as quickly as possible so that other brides have a chance to try them on.

10. Have fun!

Hopefully you will find the dress of your dreams but if not, you will probably always remember your trip to Filene's.

My Experience At The Sale

Well I got up early to go check out the sale this morning. When I arrived at 7:30, hundreds of women were lined up outside of each entrance to the Filene's store here in Atlanta. Most that I asked said that they started arriving at 6:00 in the morning but some were there earlier and a few women started camping out the day before!

In addition to the groups of anxious women, there were also news cameras and vans, radio station personalities, bridal magazine reps, and security personnel all over the place. I really couldn't believe all of the media attention surrounding this sale!

Anyway, although I saw some women that appeared to be there alone, most were in groups and many chose to wear novelty head bands so they could find each other once inside the store.

At about 5 minutes before opening, the security personnel begin unlocking the doors. At that point, some of the women who were further back in the line started to come to the front. I was very surprised when the women closer to the front of the line yelled "No" almost in unison as is if it were planned.

I even witnessed a verbal argument between a mother-of-the-bride and an unrelated young woman. The mother had arrived early and had been waiting at the front of the line all morning. But as the 8am hour drew near, younger girls started inching toward the front. This particular young woman attempted breaking in front of this mother and a verbal argument ensued. I really wish I would have had my video camera!

So one or two minutes after that, a gentleman that works at Filene's (possibly the manager) came out and addressed the crowd. He told the women not to run but to walk. He said that there were over 1000 dresses inside so there were definitely enough dresses for everyone to get a dress. Then he walked back inside and they opened the doors....

Evidently no one listened to the store manager's announcement because as soon as those doors opened the girls were off and running.

It took less than a minute for everyone to get inside the store. There was a traffic jam on the stairs and escalator. I even heard someone on the escalator screaming but I couldn't see what was happening because of the large crowd.

While everyone was trying to get up the stairs and escalators, I just leisurely got on the elevator with a few other clever brides and we got to the 2nd floor right away. Since I was taking photos, I didn't even enter the store until all of the brides had entered the store. Even so, it took me less than 2 minutes to enter the store and get upstairs to where the gowns were.

I have to say it was totally crazy up there. There were so many people, I couldn't even figure out where the gowns were. I later realized that I couldn't see the gown racks because the racks were already stripped bare!

Many women were carrying around as many gowns as they could hold. I saw brides that wore bikinis as underwear - pretty good idea. I also saw people carrying around signs that indicated what sizes they were looking for - another good idea!

Filene's has lots of dressing rooms and people were lined up waiting for them, but many, many women chose to try on dresses in the aisles. There were lots of men and news cameras there but these women didn't seem to care. I even saw one news camera focusing in on and talking to one bride while she was dressing - I couldn't believe it!

I also saw the security personnel walking around holding up lost cell phones and pieces of lost clothing.

Due to the chaos (and large numbers of undressed women), I was unable to get any good photos inside. Trust me when I say it was a wedding gown frenzy!

The good news is that I saw several women purchasing gowns so I guess this sale/event was worth it for these brides. And it was a lot of fun too!

An Important Note

This sale is only a one-day sale and the gowns are not returnable.

QUESTIONS:

a. How does this market work/look and how does the market for wedding gowns usually look? (What is the diagram for this market? What is the diagram for wedding gowns usually?)

b. How many markets are there (in this one example)?

c. Is this market (or the many markets you see here) efficient? Explain.