A Thanksgiving Mystery

Thanksgiving means more demand for turkeys. And yet supermarkets discount the price. Why?

First some turkey facts. This year, the American Farm Bureau says that the price of a typical turkey is up 22% from last year. According to Slate, the price of the typical supermarket frozen turkey has been increasing since the 2007 recession began.

One culprit is corn. As this turkey farmer said, “Any time corn prices jump, our costs go up a lot.” Revenue may be record setting but not profits.

But still, knowing the once a year turkey buyer is price-sensitive, your local supermarket will probably charge 10% less than its October price. Similarly, during Lent, food stores discount tuna. And people pay less for beer during the 4th of July weekend.

Finally, priced from $75 to $100 and more, here is a turkey for which buyers are not price sensitive.

The Economic Lesson

Knowing that the Thanksgiving turkey customer is price sensitive, food stores charge less. But, they make their money on relatively expensive complementary goods like sweet potatoes and cranberries and cream of mushroom soup.

Looking at a graph, you would see the demand for turkeys rise. As a result, the demand curve for a complement would also shift to the right.

An Economic Question: On a supply and demand graph, how would you illustrate the increase in typical Thanksgiving supermarket turkey prices?