Economics Economics EE Primary Research Method

[DavidNZ]

Hey,

I'm doing my EE as an Economics Micro Topic. My research covers the local ferry service, that travels from my suburb into the Central Business District. I'm seeing to what extent it is a monopoly for commuters who live in my suburb (our suburb is at the end of a peninsula, so people can also drive into work, but it takes longer and generally costs more).

In terms of working this out, I am going to survey commuters in the area about various things in order to see if it is a monopoly. Obviously, an important aspect is the Price Elasticity of Demand for the ferry, and also the Cross Price Elasticity of Demand between the ferry and driving.

Basically, my question concerns calculating the Demand and the Elasticity of the ferry service. At the moment I'm going to ask people, "If the price of the ferry increased 50%, would you still take the ferry?". If they answered yes, I would then ask, "If the price increased 100% would you still take the ferry?". I would then continue up and up (150%, 200%, etc...) until I had found the maximum price range each person would pay. Obviously there would be a drop off of people for each increase, and so I could plot a nice demand curve. Furthermore, these numbers would give me an indication of PED, which is important when considering a monopoly.

This same idea would extend for non ferry takers' PED (e.g. "if the price of driving increased 50%, would you still drive?") and also for calculating a XPED between the ferry and alternatives (e.g. "If the price of alternatives dropped 50%, would you still ferry?")

This seems great in theory, but my question is, is it acceptable practice calculating PED using people's theoretical price limits? I remember reading in one of the EE handbooks that we should use good practice while doing primary research and an explicit economics example was something along the lines of, 'You cannot calculate PED by asking for theoretical demand'... I see what they mean, because people may not be able to accurately know when they'd actually no longer take the ferry (they might say a jump in price wouldn't stop them, but who knows what they'd do if the price actually did double overnight...) However in the handbook, I'm not sure whether they mean asking people for a specific number is inaccurate ("What is the maximum price you would pay for the ferry?" (Sample answer: Um.... $12???) Because that is obviously less concrete and harder for people to accurately consider than a more specific question like, "If the price doubled would you still ferry? (Sample answer: Yes)"

Maybe someone who knows a bit more about survey technique and economic theory could help me out here? I'm not worried so much that I won't get good survey results, I'm more worried about being pinged by the marker (possibly some economics hard case), later on for bad practice. As far as I can tell my questions will get accurate results, but any advice or anything would be great

Thanks!

[~Lc~]

I didn't do Economics at IB, but I am doing it at Master's level and I can tell you that in practice, PED is calculated using sales data which has some fancy equations and statistical theory to support it (it's called econometrics, but you don't learn this until the 2nd year of an Economics degree at uni).

I would hope someone who did do Economics EE can come and answer your question, otherwise I could help you calculate it if you can get your hands on the sales figures and price changes from the company you are analysing I will not be doing this for you, but I can explain the process in a simplified way that allows you to conduct it on simple statistical software which could be free (we could also do it on excel).

Edit: Having had a 2nd thought about it, we can easily do it on excel and have nice graphs for you to present in there which would be an excellent grade booster. Economists love graphs

Before doing so, I would advise you to speak to your teacher whether this is recommended or not. That being said the company may not want to share their data with you

Sorry if this isn't as helpful as I intended it to be.

[DavidNZ]

I didn't do Economics at IB, but I am doing it at Master's level and I can tell you that in practice, PED is calculated using sales data which has some fancy equations and statistical theory to support it (it's called econometrics, but you don't learn this until the 2nd year of an Economics degree at uni).

I would hope someone who did do Economics EE can come and answer your question, otherwise I could help you calculate it if you can get your hands on the sales figures and price changes from the company you are analysing I will not be doing this for you, but I can explain the process in a simplified way that allows you to conduct it on simple statistical software which could be free (we could also do it on excel).

Edit: Having had a 2nd thought about it, we can easily do it on excel and have nice graphs for you to present in there which would be an excellent grade booster. Economists love graphs

Before doing so, I would advise you to speak to your teacher whether this is recommended or not. That being said the company may not want to share their data with you

Sorry if this isn't as helpful as I intended it to be.

Firstly, thanks for the reply I did some earlier research into PED and discovered that you need sales data to truly calculate it. Unfortunately, the company is not publicly listed, and so this data is not freely available. Furthermore, a few months ago when I contacted them asking for passenger numbers or other data, like you suggested might happen, I was turned down - they are quite secretive about these things

Some very general public data is available for different years about total annual ferry numbers, and this could be compared to how the ticket prices changed. However, following some initiatives and population growth, public transport use has been on the rise in general, and so despite a slowly rising price of ferry tickets (about 10% in the past few years), total passenger numbers have in fact been increasing (about 20% in the same time!), making this data fairly useless for PED, since it can't be isolated from other factors like population growth.

My initial feeling is that asking people how they would deal with a price rise is not as accurate as real sales data, but still has some merit to it when considering whether it's a monopoly?

I might try again to get some sales data from them, but like I said, they aren't too keen on giving exact numbers.

Edited October 7, 2013 by DavidNZ

[~Lc~]

I didn't do Economics at IB, but I am doing it at Master's level and I can tell you that in practice, PED is calculated using sales data which has some fancy equations and statistical theory to support it (it's called econometrics, but you don't learn this until the 2nd year of an Economics degree at uni).

I would hope someone who did do Economics EE can come and answer your question, otherwise I could help you calculate it if you can get your hands on the sales figures and price changes from the company you are analysing I will not be doing this for you, but I can explain the process in a simplified way that allows you to conduct it on simple statistical software which could be free (we could also do it on excel).

Edit: Having had a 2nd thought about it, we can easily do it on excel and have nice graphs for you to present in there which would be an excellent grade booster. Economists love graphs

Before doing so, I would advise you to speak to your teacher whether this is recommended or not. That being said the company may not want to share their data with you

Sorry if this isn't as helpful as I intended it to be.

Firstly, thanks for the reply I did some earlier research into PED and discovered that you need sales data to truly calculate it. Unfortunately, the company is not publicly listed, and so this data is not freely available. Furthermore, a few months ago when I contacted them asking for passenger numbers or other data, like you suggested might happen, I was turned down - they are quite secretive about these things

Some very general public data is available for different years about total annual ferry numbers, and this could be compared to how the ticket prices changed. However, following some initiatives and population growth, public transport use has been on the rise in general, and so despite a slowly rising price of ferry tickets (about 10% in the past few years), total passenger numbers have in fact been increasing (about 20% in the same time!), making this data fairly useless for PED, since it can't be isolated from other factors like population growth.

My initial feeling is that asking people how they would deal with a price rise is not as accurate as real sales data, but still has some merit to it when considering whether it's a monopoly?

I might try again to get some sales data from them, but like I said, they aren't too keen on giving exact numbers.

That's fair enough! I think if you explain that it is a qualitative study and make inferences about the consumer behaviour rather than elasticities and things you would be able to get away with that from survey data. I don't think deductions about elasticities can be made from merely asking questions to the consumers to be honest has your teacher encouraged it?