INSTRUCTOR DISCUSSION NOTES:
People are Discovering that They Can Make Money off of Other People's Desire to be Fit

1. There seem to be a significant number of firms entering this market to sell their products. Is it fair to state that this market is becoming, and will be, over-saturated with firms before equilibrium will be reached? Why or why not?

Yes. The market will in all likelihood become over-saturated before it achieves equilibrium. Companies will base decisions on marginal analysis, and will enter as long as it is marginally profitable to do so. But as long as firms are moving simultaneously, firms will not be able to accurately identify marginal benefits, and so may overestimate them when entering.

2. Why do you think a 35-year-old will be more likely to be interested in wellness than a 65-year-old? Analyze this in terms of costs and benefits.

The distinction comes in terms of benefits. A 35-year-old who engages in wellness activities may expect to live much longer than a 65-year-old who does the same activities. While the costs are the same, the incremental benefits are much higher for those who are younger. Consequently, they are more likely to find such activities economically profitable.

Multiple Choice/True False Questions

1. What effect does the increase in the number of Americans identified as obese have on this new industry?
  1. Increases demand
  2. Increases supply
  3. Decreases supply
  4. A and B
ANS . d

2. With the increase in the number of options for those considering wellness activities, what do you think will happen to the relative elasticities of demand for wellness as a result?
  1. Elasticity of demand will increase
  2. Elasticity of demand will decrease
  3. Elasticity of demand will not change
  4. Elasticity of demand will become negative.
ANS . a

3. Over time, as more and more firms enter this market will different products (creating a monopolistically competitive industry), what would you expect to see happen to the relative profitability of any individual firm?
  1. Profits should fall.
  2. Profits should rise.
  3. Profits should remain the same.
  4. Profits should become economic losses.
ANS . a

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