Students should work in pairs/small groups to study the table and answer the prompt question.
Comments:
Alcoholic drinks and tobacco appear to be inferior between 1970 and 2008, but in reality demand is probably falling as a result of other factors rather than income. Other categories, however, probably do say something about income elasticity, with food, housing and recreation behaving like we might expect.
Table 6.3 Volume of household expenditure: by purpose United Kingdom
Index numbers (1970=100)
| 1970 | 1981 | 1991 | 2001 | 2008 | 2013 | |
|---|---|---|---|---|---|---|
| Food and non-alcoholic drinks | 100 | 105 | 117 | 137 | 149 | 142 |
| Clothing and footwear | 100 | 122 | 190 | 350 | 520 | 670 |
| Housing, water and fuel | 100 | 118 | 141 | 154 | 163 | 171 |
| Household goods and services | 100 | 122 | 167 | 274 | 300 | 273 |
| Health | 100 | 126 | 185 | 191 | 233 | 221 |
| Transport | 100 | 142 | 200 | 273 | 325 | 304 |
| Communication | 100 | 191 | 308 | 795 | 1,132 | 1,073 |
| Recreation and culture | 100 | 169 | 298 | 581 | 930 | 961 |
| Education | 100 | 162 | 202 | 258 | 231 | 199 |
| Restaurants and hotels | 100 | 132 | 175 | 202 | 211 | 194 |
| National income | 100 | 125 | 174 | 240 | 284 | 278 |
Question 1
What happened to national income between 1970 and 2008? What about between 2008 and 2013?
Question 2
Given that:
a. Which goods seem to be income elastic and inelastic?
b. Which goods seem to have postive and negative YED?
c. Pick three goods and try to explain why this might be.
Question 3
Look at the index numbers:
a. Why are they all ‘100’ in 1970?
b. What do the numbers therefore mean in later years?
Have students read the two news stories and consider the following
- 1) Whether YED appears to +ve or –ve (+ve for travel, -ve for Dominos pizzas apparently).
- 2) How elastic YED seems to be (more than/less than proportional)
- 3) How much of the change is in reality down to the recession and how much is down to other factors (eg the advertising campaign that Dominos undertook)
Click on a news item to read
Article 1 - Source URL: This is MONEY.co.uk
The amount of petrol sold on UK forecourts has slumped this year, official figures have shown, as cash-strapped motorists [motorists with lower disposable incomes because of job losses and pay cuts during the recession] cut down on their journeys.
According to the Department of Energy and Climate Change (DECC), almost 500 million fewer litres of petrol were sold between April and June compared to the same period last year. The fall came despite a fall in prices compared to the preceding quarter.
Source URL: 'BBC News'
For the whole of the first half of 2012, the statistics show that more than two billions fewer litres of petrol and diesel were sold on forecourts compared to the same period in 2008 – just before recession took grip.
Yesterday, research from Moneysupermarket revealed that an increasing number of motorists are sacrificing going out and shopping for clothes to help keep their cars on the road. …
The DECC figures for petrol sales lay bare the burden carried by drivers since the financial crisis struck. In the first six months of 2008, before recession hit the UK, retail sales of petrol and diesel reached 18.97 billion litres.
In the first half of this year, retailers sold 16.7 billion litres – a fall of 12 per cent. …
[AA president] Mr [Edmund] King added: ‘A fall of 2.27 billion litres in UK fuel sales over the first six months of this year compared to the same period in 2008 has got to bring some sense of reality to the fuel market and the Government.
Article 2 - Source URL: The Guardian
The increasing number of Britons opting to stay in on weekends rather than go out as a result of the economic downturn has seen Domino's Pizza report upbeat sales for yet another quarter.
Source: 'ONS'
Britain's biggest pizza delivery chain said it was on track to beat market expectations for the year as people ate Pepperoni Passion and Texas BBQ on their sofas in front of the television as a recession-beating pastime.
The company has always recognised that the pizza business does well when times are hard, and has taken full advantage of the drop in advertising rates to continue to promote its discounts and deals to a cash-strapped public.
Sales were up 11% in the third quarter over the same period last year, pushing overall growth for the year to 8.3%.