Welcome to week four of Microeconomics. My name is Jose Vazquez and we are here
again in a different location at Champaign-Urbana, which is where the
University of Illinois is located. And we are at the Black Dog Smoke House
and Bar. It's one of the most popular places in
town. It's hard to get a table here if you come
any time of the week after 4 o'clock. If you to come at lunch it's hard to get a
table here period. This place is crowded from the moment they
open the doors to the moment they close. And we wanted to come here, because this
part of the week, we are going to try to transition from, from the general economy
into more of the business side of the of economics.
And we'll really go full fletch to the business side next week, but this week
it's a good place to start here, because we're going to start talking about prices
as we discuss the issue of elasticity. And elasticity is one of the most
important issues in economics and one of the most interesting ones and so, we' ll
do that this week. We have some interesting applications.
We talk about taxes towards the end of the week, after we cover the concepts.
We also talk a little bit go back to the example of the market for illegal drugs,
particularly marijuana, and see what is the effect on crime.
So we have some interesting applications of elasticity.
Elasticity, actually, turns out to be one of the most interesting topics of
economics. Now we're here starting this week,
because, as we said, we're going to talk about prices, and in particularly, the
effect of a change in price has both on the revenue side and on the expenditure
side. For the revenue side, if you have a
business, then you care about what is the effect of a change in price.
For instance, one question that you can have to a person that owns this business
is you sell a barbecue sandwich are really popular here for $7.95.
Someone eating the sandwich and really thinking this is the best sandwich I ever
had, one question they could have is like how come yo don't increase the prices of
your sandwiches? You can make a lot more money if you do.
So, before I give you the answer, and I won't give you the answer completely until
the end of that week, so you'll have time to think about it.
Let's hear what the owner of this establishment has to say about that.
[music]. Black Dog restaurant, we do traditional
barbecue sort of like a beef brisket pulled pork, and then, we like to have a
little fun and do some specials, like our Cuban sandwich where we take American
barbecue, the pulled pork, and add it to the Cuban sandwich to try to do something
a little different. [music] Most of our sandwiches are priced
around, are priced at 7.95 and we figure a, try to figure a food cost of 35%.
So we'd start there with what it costs and essentially multiply by three to get our
price and you have to include everything that goes in that sandwich.
So the barbecue sauce, the coleslaw the protein, the bun, and then, we also do the
same thing for the side order, but we're not necessarily greedy.
I mean we're not out to try to make the most money.
We're in it for the long haul. It's a business we want to do.
We, we're not trying to make people mad. We'd like to see a lot of people coming
through the door and I think that's one of the benefits of our business in what we're
in is that we appeal to a broad range of people and that's what keeps us busy as we
are. We already have a long line.
We don't need another inhibition for people.
We don't need it another way for people not to want to come to us.
So we hear like a lot of things about what they're already established and has to say
and we'll, we actually hear most about, more about him in the weeks to come.
But in particular, into some prices, you heard that increase in the price for him
is not necessarily such a done deal, right?
It's not such an easy question. There's some reasons that he gave you as
to why he wouldn't increase the, the price of the sandwiches, and one of them, is
because it would probably reduce the number of people walking through the door.
Right? So the price elasticity of demand, the
topic we're going to talk about this week is that rate that he keeps his mind about
the need, the price of the sandwich versus the people coming through the door.
This is one of the most interesting topics that we're going to do throughout the
course. We have some interesting applications
toward the end. Elasticity, again, influence both sides of
the of the equation, the revenue, and expenditures.
But first, we need to actually do the nitty gritty and learn really what
elasticity is. And we're going to, to do those things
first and then start applying those concepts at the end of the week.
[music] Produced by OCE Atlas Digital Media at the University of Illinois
Urbana-Champaign.
Dr. José J. Vázquez-CognetClinical Professor
