B friendly airlines travel expenditure is more

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b. Friendly Airlines. Travel expenditure is more sensitive to the business cycle than movie consumption. 11. This exercise is left to the student 12. The index of consumer expectations is a useful leading economic indicator because, if consumers are optimistic about the future, they will be more willing to spend money, especially on consumer durables, which will increase aggregate demand and stimulate the economy. 17-2
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13. Labor cost per unit is a useful lagging indicator because wages typically start rising only well into an economic expansion. At the beginning of an expansion, there is considerable slack in the economy and output can expand without employers bidding up the price of inputs or the wages of employees. By the time wages start increasing due to high demand for labor, the boom period has already progressed considerably. 14. a. The concept of an industrial life cycle refers to the tendency of most industries to go through various stages of growth. The rate of growth, the competitive environment, profit margins and pricing strategies tend to shift as an industry moves from one stage to the next, although it is generally difficult to identify precisely when one stage has ended and the next begun. The start-up stage is characterized by perceptions of a large potential market and by a high level of optimism for potential profits. However, this stage usually demonstrates a high rate of failure. In the second stage, often called stable growth or consolidation, growth is high and accelerating, the markets are broadening, unit costs are declining and quality is improving. In this stage, industry leaders begin to emerge. The third stage, usually called slowing growth or maturity, is characterized by decelerating growth caused by factors such as maturing markets and/or competitive inroads by other products. Finally, an industry reaches a stage of relative decline in which sales slow or even decline. Product pricing, profitability and industry competitive structure often vary by stage. Thus, for example, the first stage usually encompasses high product prices, high costs (R&D, marketing, etc.) and a (temporary) monopolistic industry structure. In stage two (stable growth), new entrants begin to appear and costs fall rapidly due to the learning curve. Prices generally do not fall as rapidly, however, allowing profit margins to increase. In stage three (slowing growth), growth begins to slow as the product or service begins to saturate the market, and margins are eroded by significant price reductions. In the final stage, industry cumulative production is so high that production costs have stopped declining, profit margins are thin (assuming competition exists), and the fate of the industry depends on replacement demand and the existence of substitute products/services.
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