../../../MY_DOC%7E1/MY_DOC%7E1/ECONNEWS/South-Western%20College%20Publishing%20-%20Economics  
Subject Wireless-phone-only households are increasing, but not as quickly as predicted.
Topic Product Markets; Elasticity
Key Words wireless, cellular phone, telephone
News Story

The percentage of wireless-only households was 6% last year, an increase over the previous year. But the increase isn't as large or as dramatic as experts predicted it would be.

Consumers are discovering that it's handy to keep a landline in the home, as cellular phone service may be spotty, Internet usage still requires a telephone line in some cases, and it is impossible to use up minutes on a regular telephone.

Many people who indicated that they would switch from a regular telephone to a cellular phone for their primary phone, but then failed to follow through. A research firm found that only 25% of those who indicated as such actually did convert to a wireless-only phone.

Demographics play a significant role in this. Many people keep a land-line telephone in the home because there was always a land-line telephone in their home growing up. A significant percentage of wireless-only households are younger, though people who never had regular telephone service. This will have a much more serious effect on regular telephone service than the introduction of the cellular phone itself. People who are accustomed to relying on their cell phone for all of their needs may never require the use of a regular telephone.

Questions
1.

What predicted relationship existed between landline phone and cellular phones? That is, what kind of goods were they expected to be? What kind of relationship in fact exists?

2. Why is there a difference between the predicted relationship and the actual outcome?
3. What would you expect to happen over time to the price of telephone service? Why? Illustrate your answer with a graph of supply and demand.
4. Based on the information in this article, is demand for regular telephone service elastic or inelastic? Why?
Source Christopher Rhoads, "Cutting the Phone Cord isn't as Popular as Once Predicted." The Wall Street Journal, 2 June 2005. B1+.

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