Elasticity of Demand for Lottery Tickets

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Elasticity of Demand for Lottery Tickets

Elasticity is the responsiveness of demand or supply to the changes in prices or income. There are various formulas and guidelines to follow when trying to calculate these responses. For instance, when the percentage of change of the quantity demanded is greater then the percentage change in price, the demand is known to be price elastic. On the other hand, if the percentage change in demand is less than then the percentage change in price; Like that of demand, supply works in a similar way. When the percentage change of quantity supplied is greater than the percentage change in price, supply is know to be elastic. When the percentage change of quantity supplied is less then the percentage change in price, then the supply then demand is known to be price inelastic.

The following text is real world examples of these economic principles. They have been provided to build a bridge between current economic situations and economic principles of elasticity.

The Demand for Lotto: The Role of Conscious Selection

In this article is a discussion about the elasticity of demand for lottery tickets. Time series data was used in a way in which the expected value of the lottery ticket would vary due to rollovers (Farrel 1). It was found that there are far more rollovers than expected given the lottery design (Farrel 1). There was also some strong evidence found that supported that individuals did not pick their numbers in a uniform matter. The inverse supply function was found by using estimates that enabled them to identify the demand elasticity (Farrel 1).

This analysis was based on the U.K. National Lottery that came about November 1994. With this in mind we realize that because game designs are similar throughout the world, these findings are more widely relevant (Farrel 1).

The price elasticity of demand for lottery tickets shows that demand varies depending on the expected return from a winning ticket (Farrel 1). From this we deduce that this elasticity is relevant to the design of the lottery (Farrel 1). The way that the demand elasticity is derived is by comparing the rollover weeks with the non-rollover weeks. By doing this, the normal demand is recorded during the non-rollover weeks to see what level the demand is usually at. Then from there they can see how the demand increases as the lott...

... middle of paper ...

...ing how some studies and economic research has been taking place and where. I found some of the studies to be trivial. This meaning that the authors used creative techniques to figure and estimate some of the elasticities. I also found it interesting how I could relate to the real life situations such as the Lottery. For example, when the lottery starts rolling over it creates a hype, and the demand goes up. I was always aware of this phenomenon but never realized what it actually was.

Bibliography:

Work Cited

Farrell, Lisa; Hartley, Roger; Lanot, Gauthier; Walker, Ian The Demand for Lotto: The Role of Conscious Selection, Journal of Business & Economic Statistics, Apr2000, Vol. 18 Issue 2.

Mason, Paul M.; Steagall, Jeffrey W., The elasticity of demand for lotto tickets and the corresponding welfare effects., Public Finance Review, Sep97, Vol. 25, Issue 5.

Rashid, Muhammad; Mitra, Devashis, Price Elasticity of Demand and an Optimal Cash Discount Rate in Credit Policy, Financial Review, Aug99, Vol. 34 Issue.

Montgomery, Alan L.; Rossi, Peter E., Estimating Price Elasticities with Theory-Based Priors, Journal of Marketing Research, Nov99, Vol. 36 Issue 4.

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