Question

Suppose you are a stock market analyst specialising in the stocks of theme parks, and you are examining Disneyland’s stocks. The Wall Street Journal reports that tourism has slowed down in the United States. At Six Flags Magic Mountain in Valencia, California, a new Viper roller coaster is now operating and another new ride, Psyclone, will be opening this year. Using demand and supply analysis, predict the impact of these events on ticket prices and attendance at Disneyland. As reported in The Wall Street Journal, Disneyland slashed ticket prices and admitted that attendance was somewhat lower. Is this consistent with your prediction using demand and supply analysis? In light of the fact that both price and output were falling at Disneyland, is the law of demand being violated in the world of fantasy? [15 marks]

Answer 1

In the given scenario, two events are taking place:

• the addition of two new rides at Magic Mountain (which is a substitute to Disneyland)
• the slowdown in tourism

The net result of the given two events is that demand for Disneyland tickets will fall.

The two new rides at Magic Mountain improve its capacity and attractiveness (ability to supply). Some potential customers of Disneyland will be lost, given that there is only about a 60 mile distance between the two parks.

Further, the slowdown in tourism anyway means that demand for theme parks has fallen.

In the given article, there is no evidence of any supply-side event at Disneyland. The graph below shows the demand-side situation:

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Yes, the WSJ news is consistent with the demand and supply analysis.

It is quite evident that Disneyland would have to slash ticket prices. On one hand, they have no new rides to boast of. On the other hand, the inflow of customers has anway slowed down. If they don't cut prices, they will not get even a fraction of the existing customers.

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No, the Law of Demand is not being violated.

It is just that the leftward shift in demand is much larger than any improvements in supply.

This law assumes many other factors being constant. For example, the number of customers, the tastes and preferences, and the availability of substitutes.

Further, as income levels have fallen, and government restrictions are in place, demand is bound to fall.