Econ in the News: Back-to-School Spending

For students across the United States, the end of August signals the inception of the next school year. For retailers, that means one final rush for back-to-school supplies.

The National Retail Foundation estimates that families with school-age children will spend an average of $630 this year on school-related supplies. This includes clothing (92.7%) , shoes (91.2%), school supplies (94.1%), and electronics (57.0%). While demand for these supplies rises during the summer months before the school year, many retailers choose to discount their items. With a quick economic analysis, this can mean one of two things:

These items have an elastic Price Elasticity of Demand: By decreasing the price of the items, retailers sell so much more that they earn more profit than if the higher price was kept. Because demand for school supplies shifts outward during this period, and because some items are going to be “impulse buys” for shoppers, this is a possible cause of discounting.

More likely, asymmetric information is in play. Retailers often plan ahead, setting “official” prices such that the discounts applied during these promotional periods obtain the retailers’ desired profit margins. In other words, since the shoppers don’t know how much the retailer bought their items for, they tend to assume that the discounts are giving them a better deal than if they bought at another time. This encourages more spending, which is good for retailers (and the economy).

If you want to learn more about the consumer survey, you can find the original NRF research data here.

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