After examining airfare and gasoline prices, the general price development is of interest for the CEA report. Therefore, as a next topic, Santa wants to discuss the price dynamics during the holidays. Some prices fall. Donner explains to Santa that price development during Christmas is easy to predict. The demand for presents and groceries is especially high during Christmas seasons. The supply and demand model predicts that demand shifts outwards and thus equilibrium price as well as quantity demanded increase.
Rudolph strongly disagrees. Donner's explanation is much too simplifi ed and contradicts empirical evidence. Rudolph shares the findings of Warner and Barsky (1995), showing that prices for a wide variety of consumer goods from action fi gures over bicycles to power tools and food processors fall at demand peaks prior to Christmas. For groceries, MacDonald (2000) and Chevalier et al. (2003) show declining prices during the holiday period. Santa is stunned. What are the reasons for price decrease before Christmas? That seems to contradict everything he ever learned about economics. Rudolph shares his thoughts of the four possible reasons with the CEA...Back to the workshop, Elves. Santa knows who's naughty and who's nice.