Planning for recession Many students find this a tricky subject. It is particularly important that before starting this topic you do some background reading from your textbook and other sources on: Price elasticity of demand Income elasticity of demand Elasticity of demand Planning for recession Press F5 on your keyboard to launch this PowerPoint presentation 08 December 2018

Planning for recession Consider how sales of a variety of products might be affected by a recession. In the spring and summer of 2008 Britain was heading for a recession Spending showed signs of declining due to lost consumer & business confidence Firms that know the price and income elasticities of their products can try to plan for the likely effects on demand ... … and then make early decisions about production and marketing strategies You may wish to consider: Bus travel Delicatessen shop Supermarket own-brand products Organic food Walkers crisps New car sales – Audi v Ford??? * 08 December 2018

income elasticity of demand group discussion Businesses that may benefit include: DIY retailers (consumers decide to ‘do up’ their current houses rather than move) Small builders: People build extensions rather than move DVD rental/pizza delivery: For a cheap Friday night in Aldi/Lidl: The value supermarkets as consumers watch their pennies Businesses that may be immune: Funeral directors – People die in recessions too (although funerals may not be so lavish) Cigarette manufacturers – addiction may be recession proof Think about your personal income elasticity of demand Which goods are luxuries? Which are necessities/normal goods? Which are inferior? Read this article about the UK’s recession Why might people change their spending habits in a recession? Might any firms benefit? Are any firms immune? Reasons include: Increase in cost of mortgages restricts discretionary income Anxiety about job loses – people start to save more: service firms suffering Fall in house purchases – 30% according to Persimmon leading to job losses at building firms and a domino effect in suppliers to these firms Fall in business investment – has a knock-on effect ‘Recession 'looming' for UK firms’, BBC News, 8/6/08 * 08 December 2018

Calculating price elasticity starbucks discussion “FOR years it seemed that American consumers’ demand for liquid fuel was price inelastic—whether it was to drive their cars or get their brains going in the morning. Yet $4 seems to have been the price at which demand becomes elastic, for both petrol and a frothy latte. As a result, baristas at Starbucks coffee shops around America are starting to get a taste of what it feels like to be a carworker in Detroit.” Tasks Discuss the meaning of this quotation Can you draw a graph that shows the different elasticities for coffee? Image by visualpanic on flickr.com. Used with permission * 08 December 2018 “Grounds Zero”, The Economist, 3/7/08

Price elasticity of demand discussion How might managers use information about the price and income elasticities of their products? To what extent should managers base pricing decisions on price and income elasticity information? * 08 December 2018

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