South-Western College Publishing - Economics  
People are Discovering that They Can Make Money off of Other People's Desire to be Fit
Topic Product Markets ; Supply and Demand
Key Words wellness, industry, competition, price, differentiated products
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Reference ID: A156734045

News Story Surveys document that 25% of Americans want to feel more "in balance" with their lives. And a 35 year-old is more likely to feel this way than a 65 year-old. Can we say, new industry? Yes, we can.

It's not just about physical fitness anymore. People want a more holistic approach to wellness, from the physical to the spiritual to the emotional. And lots of firms are stepping in to help them achieve that. The largest is Canyon Ranch, one of the oldest health spas in the country. Other firms have thrown their hats into the ring: Wellmark, an insurer, has offered lower premiums to take advantage of health programs. Coca-Cola is offering a new "wellness drink." Canyon Ranch, together with the famous Cleveland Clinic, are creating Canyon Ranch Living, a planned development in Florida for those who want round-the-clock wellness efforts.

Is it all good? It seems so: most studies indicate that a more holistic approach to fitness reduces overall health costs. Wellness goes one step further, though, and marries prevention to care. By focusing on nutrition, beauty, natural medicine, behavioral therapy, and fitness, it seems that healthier workers lead to less stressful working environments, increasing productivity, reducing absenteeism and reducing mortality.

And now that there are multiple purveyors of wellness, all you have to do is decide which program is best for you…

Discussion Questions:
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?
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.
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
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.
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.
Source "The Wellness Boom." The Economist. January 4, 2007.
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