Monday, June 29, 2020

Which industries will be in the best shape when we return?


In the 2x2 table above from the Shrewd Samaratan, via MarginalRevolution, there are two dimensions:

  • Purchases
    • "Gone Forever," goods and services whose purchases were abandoned during the shutdown, vs.
    • "Snap-Back," purchases that were postponed by the shutdown.
  • Income Elasticity of Demand measures sensitivity of demand to income.
    • High Income Elasticity, goods whose demand falls as income falls, vs
    • Low Income Elasticity, goods whose demand is relatively insensitive to income.  

The colors correspond to the outlook for each industry: 

  • Orange box:  lost profits from abandoned purchases, and low future demand because income has fallen.
  • Green box: delayed profits from postponed purchases; and relatively high future demand.

The two off diagonal boxes are in-between these two extremes: 

  • Blue lower-left box: lost profit from abandoned purchases, but relatively high future demand
  • Blue upper-right box:  delayed profits from postponed purchases, but relatively high future demand.



2 comments:

  1. Is there maybe a typo in the last bullet point:

    Blue upper-right box: delayed profits from postponed purchases, but relatively high future demand.

    I think this should read:

    Blue upper-right box: delayed profits from postponed purchases, but relatively LOW future demand.

    High income elasticity should lead to lower demand for these productes in the future. Or did I misunderstand the basic concept here?

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