The Economics of Christmas
In this week’s edition of EzyEconomics News we use standard microeconomic theory to analyse the economics behind Christmas. Christmas is a period of significant economic activity as consumers rush to get their goods in time for the 25th of December. Because of this it is estimated that the UK retail sector will generate £76bn worth of sales during the festive period, exceeding that of any other European country.
But Christmas is also a period of enormous waste and many unwanted goods are received because of individuals failing to recognise and understand each other’s preferences. If aggregated across the economy, this amounts to a large deadweight loss to society, which threatens to undermine the joys of the festive season.
The video uses the concept of elasticity to help explain and justify the different pricing strategies that firms implement during the Christmas period to capture the higher profits available. It also goes on to explain the economics behind gift giving and why the process of gift giving during Christmas creates a deadweight loss to society.