Elasticity - Inferior Goods - Opportunity for Observation

I have recently been discussing Elasticity because it is an important economic concept which aims to describe a component of human behaviour when in comes to economic choices. As I had previously mentioned, the current environment is a spectacular opportunity to observe and learn. It is a chance to see if the lessons we learned in class hold up in the real world and probably as "ceteris paribus" as we will ever get as this is probably the worst economic conditions we've had in a good long while.

Having said that, theoretically, what should our studies in this area have told us to predict?

Elasticity is a function of our anticipation of price movements. If we expect prices to fall, our consumption will drop as much as our elasticity will allow. For instance, if you plan on making a purchase of a good, if you expect it to be cheaper (in real terms) tomorrow rather than today (and you can wait), chances are you will buy it tomorrow. If you expect that the price will see a dramatic rising tomorrow, you will buy as much today as you can reasonably stockpile (assuming your product's life expectancy and expiry is aligned with your consumption habits - you'll "front load" your consumption). A good example of that is TTC token sales and hoarding rules before an expected price increase.

Also, your consumption of various goods will also depend on the "weight" of consumption as expressed as a percentage of your total income. For instance, your consumption of rent (or mortgage) is probably your largest outlay. Most of us will probably compromise on the size of the apartment we rent (or the house we buy) in order to stay on budget and are more sensitive to price changes here because a small percentage change in the price reflects a large percentage change in our total consumption.

There is also the idea of "inferior" goods. The typical examples are small motorcycles, rice and potatoes, public transit etc. The idea is that these uniquely positioned products have a negative relationship with income elasticity. What does that mean? Unlike normal goods where an increase in income generally increases demand, inferior goods actually become less popular (contra their substitutes) when income goes up. If you make more money, you'd probably stop taking the metro and start driving.

In an environment where people are losing benefits, taking pay cuts or flat out losing their jobs across the board, it would be interesting to see the economic effect on the purchases on some of these goods in some form of "inferior goods" index as a measure of general economic hardship. This might be one area which would actually benefit from economic recession.

I hope I don't appear like I am profiteering, but I think that the best way to get out of an economic crisis is to find the bright spots and leverage them (I don't mean "financially leverage" - not taking out loans to buy the stock, I mean strictly in the strategic sense) to being our slow climb out of the recession. Essentially, I'm trying to identify places which might do well in a recession, places with these qualities that would probably increase their hiring and slowly bring spending back up (along with consumer confidence).