Explaining Cinema Tickets Price Differences - Essay Example

The economic principle is known as the Price Elasticity of Demand, which is “a measure of how much the quantity demanded of a good responds to a change in the price of that good.” (Mankiw, p. 90). In simple equation form:This principle can be further characterized in two ways. First, student and senior demand for cinema tickets is considered elastic because a change in ticket price has a measurable impact on the quantity demanded. (If there was little or no change in demand in response to a change in price, demand would be termed inelastic.) Also, because in the cinema situation the numerator of the equation is greater than the denominator, the absolute price elasticity of demand must be greater than 1.

(If the numerator were larger than the denominator, the absolute price elasticity of demand would be less than 1.)There may be several economic-based reasons why students and seniors are highly responsive to cinema pricing. For most people, going to the cinema typically would be considered an optional, not a necessary, activity. So in deciding whether to allocate some of their income to attending the cinema most people are more likely to respond to lower prices. Also, many movies eventually are offered on television and DVD, so in deciding whether to allocated some of their income to attending the cinema, most people are more likely to respond to lower prices because they are not risking never seeing the particular movie.

Moreover, compared to the average adult, students and seniors are viewed as having less income and so would be more sensitive than most people to each of the above factors and thus more likely to spend if ticket prices are lower.