Tuesday, August 4, 2009

Casino And Recession

The ‘Great Recession’ had claimed another casualty-MGM Mirage. It’s a powerful group of 20 casinos operating in Nevada, Michigan, Illinois, Mississippi and China. In the recent report, its quarterly profit ending June took a sharp dip with the lost of $216.2 million. This whooping figure is tantamount to a fall of 69%

Based on this statistic, gaming industry may be regarded as a form of luxury goods but an ‘extreme’ one, perhaps surpassing the income elasticity of demand (YED) in sports car industry, designers’ clothes, expensive handbags and shoes, foreign holiday etc. Even between these goods some can be ‘more luxury’ than others. Recall the formula of YED which is given by:

YED = (% of change in quantity demanded) / (% of change in income)

Being a luxury good, YED must be greater than 1. The relationship must be positive. This means, as income falls the quantity demanded for gaming will fall but GREATER THAN PROPORTIONATE. Consider a numerical example of (-28%) / (-10%) = + 2.8 and vice-versa

However, some may argue that a fall of 69% profit may not necessary related to the number of gamers and patrons of its premises. It could be due to other factors yet to be considered such as soaring fuel and food prices which increase its operating costs as well as other cost inefficiencies

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