The owner of a professional football team increases ticket prices by 15%. At the same time the owner of a single-location hamburger restaurant raises the price of hamburgers by 15%. Which business is at more risk of losing money? Why?

The answer is the hamburger restaurant is at a greater risk of losing money.

The economic principle to use is the price elasticity of demand. It is the percentage change in quantity demanded divided by the percentage change in prices. Price elasticity measures the responsiveness of consumers to price changes. Consumer demand is considered elastic when the consumer has a large response to price changes. It is inelastic when consumers have a small response to price changes.

Luxury items have elastic responses while necessities have inelastic responses. The number of choices the consumer has will be a determinant of their response to price changes. It there is a lot of competition among the sellers of a product, the elasticity will be elastic.

The professional football team has no competition in the area where they play. If seeing a professional football game is important to fans, they will not be dissuaded by a 15% hike in prices. Their response will be inelastic. Hamburgers at a restaurant has a competition among other restaurants plus the substitutes, like hot dogs or making your own burger, are plentiful. The response will be elastic because of all the other choices the consumer has over the burgers at a restaurant. Therefore, the restaurant is more likely to lose money after the price increase.