Plain Sense Economics

With a tip to the Freakonomics blog we learn that there is a stronger market for pressure cookers in The Netherlands. The likely reason – the higher cost of electricity there. Pressure cookers are, apparently, energy savers – I guess by reducing cooking times. Electricity in The Netherlands is not subsidized nearly to the extent ours is in the US, so electricity conservation pays there.

For my new micro economics students, this is an example of cross price elasticity. This concept looks at how the market for one good (in this case pressure cookers) is impacted by a change in the price of another good (in this case electricity). Though I don’t know the numbers in this scenario, let’s assume that electrical rates went up 10 percent. If we then saw a 15 percent increase in sales of pressure cookers, we’d say that this relationship is elastic – that pressure cooker sales are very responsive to a change in price of electricity.