Video Cases - Part II

These questions are based on videos from the Canadian Broadcasting Corporation that accompany the textbook. In addition to whatever in-class use your instructor may have given them, they're available on this website for online viewing. If directed to do so by your instructor, you can answer the questions online and email the results.
     These videos are intended only for students using the 9th Canadian Edition of Microeconomics. To view the video, you'll require a password. Refer to page 42 in your textbook and use the first word appearing in the main text column as both 'username' and 'password.' Use of the word is case-sensitive.
     The free RealPlayer plug-in is required in order to view the videos. If needed, the plug-in can be downloaded from Real.

A Discount Travel Agency: An Illustration of a Market
     Synopsis: This video discusses the operation of a discount travel agency from the point of view of both demander (the customer) and supplier (the agency). The focus is on the dynamics of demand and supply in a small market. The travel agency must sell vacations quickly prior to the date of departure, at a low price to satisfy the customer. At the same time, the agency must not let the price fall too low to avoid erasing valuable commissions. The price haggling that occurs between buyer and seller serves as an interesting application of price elasticity of demand, elasticity of supply, perfect competition (market structure).
     Concepts Addressed in this video: 1) Demand side 2) Supply side 3) Price elasticity of Demand 4) Elasticity of Supply 5) Income elasticity 6) Normal/Inferior good 7) Perfect Competition

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View A Discount Travel Agency

1		Identify the supply side of the discount travel agency in this video, as well as the demand side. With reference to the video, explain how the equilibrium (exchange) price is arrived at by both buyer and seller.
2		In general, describe the price elasticity of demand (Ed) for vacations. Draw the demand curve for vacations for the travel agency shown in the video, assuming its market structure is almost perfectly competitive.
3		Describe the income elasticity for vacations offered by this discount travel agency. Would the vacations be a normal or inferior good? Explain.
4		Describe the elasticity of supply (Es) for vacations offered by the discount firm in the video. Draw a supply curve for the firm, assuming most of the discount vacations are offered very close to departure times. Draw your supply curve on the same diagram as the demand curve in question 2 to form a complete market. Label the equilibrium (exchange) price with reference to the video.
5		(a) Suppose that the discount travel agency, all else equal, experienced a drop in available vacations. Use the supply and demand curves in question 4 to illustrate the effect on equilibrium price and quantity. (b) Suppose that the agency's demand for discount vacations, all else equal, increases by the same amount as the decline in vacations in (a). Use a separate diagram with supply and demand curves to illustrate the effect on equilibrium price and quantity. (c) Which of the two examples above will have the greatest impact on the price of discount vacations in this travel agency? Explain. (HINT: This will depend upon the price elasticity of demand and supply—look at the slopes of the demand and supply curves.)