9/25/2009

Supply and Demand During the Holidays

On page 129 in our textbook, there is an example of "real world" elasticity that caught my eye. It explains that as Valentine's Day comes, roses become a necessity (well, a necessity to any man that doesn't want to sleep on the couch for a while). In the example it makes the point that greeting cards are more elastic than roses because roses are perishables. Nobody wants to give their significant other a bouquet of dead roses, therefore, floral shops can charge more to increase the quantity supplied on Valentine's Day. From this we can see that supply is relatively inelastic and because of that, the increase in demand causes the price to increase substantially.

So here's what I don't understand fully. I think that pumpkins would be classified as a "perishable" just like roses. Well maybe not just like roses but you know what I mean. How come on October 31st we don't see a spike in the price of pumpkins? Is it because supply outweighs demand? Are there too many pumpkin farmers relative to the amount of consumers purchasing pumpkins? It's been a while since I had to purchase a pumpkin but it seems like if my memory is right, pumpkins are more expensive a few weeks before Halloween and then the price of pumkins actually goes down as it gets closer to Halloween. Why can't roses work that same way? It would sure help my checkbook out because now days it seems like I'm spending my tax refund just to get a Valentine's gift.

Although, I may be wrong because according to this article, http://www.freshplaza.com/news_detail.asp?id=29734 it sounds like the pumpkin farmers may have caught on to what the rose farmers are up to and they are raising the price of pumpkins.

4 comments:

Dr. Tufte said...

I think this is a really cool question: exactly the sort of thing that this blog is supposed to lead to.

I think there is some goofy behavior here. I wonder if it is because of the enormous number of low quality pumpkins (e.g., weird shapes, diseases, miscoloration). I also wonder if it is because pumpkins were chosen for this holiday because they are so common this time of year?

Anyway, it is certainly clear that pumpkin demand gets a lot more elastic after the holiday ends. It's also clear that pumpkins don't depreciate as quickly as roses (they can last a few weeks with cheap coatings). Also, I've heard of people who are fanatical about pumpkin-carving who do say that the nice ones carry a big premium and go fast and early.

In sum, I think the effect is there, but that it is nowhere near as strong as roses.

Jayden said...

The odd price behavior of pumpkins may also have something to do with competing with suitable substitutes. A lot of people purchase plastic, stuffed, or electric jack-o-lanterns for Halloween. Stores usually discount seasonal items in the days or weeks prior to a holiday in order to unload their excess inventory. The pumpkin price decrease before Halloween seems to follow this pricing model.

Contrast a pumpkin’s suitable substitutes with a rose’s. Have you ever tried giving a woman silk roses for Valentine’s Day?

Adam said...

I’ve thought about your questions as well. It would seem that the price should go up as Halloween draws closer. Maybe pumpkins have characteristics that set them apart from roses. Even though are perishable, roses are used much more often than just on Valentine’s Day. For example, roses are often given on birthdays, anniversaries, and other significant occasions. Imagine what your spouse would say if you showed up with a pumpkin on your anniversary (assuming you have a spouse). I think he/she would be pretty mad, even if it had a diamond ring carved into it. Since pumpkins won’t really have any other use after Halloween, it could be possible that farmers are just trying to dump what they have and move on.

Paige said...

An interesting idea for a blog post! This is a very pratical concept in our country. I think that although both are seasonal, the reason may be that roses are good all year round. Sure their is an increase in their demand in February but one can still buy roses in june for a birthday present.
However, nobody really wants to purchase a pumpkin after halloween, expect MAYBE in November for the fall season.
It seems to me maybe the prices of roses raise around Valentines day because they know people will pay the price for it. As for pumpkins whatever is left over they must through away. So why not lower the price a little to try to get some of the costs back on them.
Good topic for a post!