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The Economics of Valentine’s Day

This year, consumers planned to spend big on their loved ones in honor of Valentine’s Day. According to the National Retail Federation, the average American consumer was estimated to spend $142.31 on loved ones around the holiday this year. Retailers were expected to get especially lucky this Valentine’s Day, bringing in about $18.9 billion. These numbers are not all that surprising when we consider that the prices of many common Valentine’s Day gifts rise in early February. Also, prices of these consumer goods rise from year-to-year, illustrating the impact of inflation on Valentine’s Day.

When Valentine’s Day draws near, the demand for “romantic” gifts such as chocolate, flowers, and jewelry increases. With this increase in demand, prices for many goods and services rise. This is especially true when it comes to roses. According to the International Business Times, the price of long-stemmed roses in the United States will increase anywhere from 30 to 50 percent before Valentine’s Day.

The increase in demand for (and price of) “romantic” gifts such as roses can mostly be attributed to the temporary change in consumer tastes and preferences that occurs during the holiday. Consumers do not usually purchase bouquets of flowers or boxes of chocolate for their loved ones if it is not a special occasion or a holiday. Additionally, these goods are not necessities, so people rarely purchase them for themselves. Because the goods and services that are purchased during Valentine’s Day have many substitutes and are more luxury than necessity, the demand for these goods is most likely elastic.

The prices of Valentine’s Day goods and services also increase year-to-year. According to the National Retail Federation, total Valentine’s Day spending in the United States was estimated to increase by 8.5% from last year to this year. The “Cost of Loving Index,” which is prepared annually by the Houston Asset Management, includes average prices of some of the most classic Valentine’s Day gifts. It exhibits how the prices of some goods have dropped over the years, while others have increased. As shown in table below, the prices of most goods and services have risen significantly since 1990. The prices of a few goods and services have even risen since Valentine’s Day 2014. For example, the price of a candlelight dinner has increased a full 5% since last year. The price of a bottle of Chardonnay has risen approximately 10% since last Valentine’s Day. Overall, the price of the goods and services the Houston Asset Management tracks have risen 3% since last year, showing how inflation affects Valentine’s Day.

Cost of Loving 2015*

Change
Item 1990 2014 2015 1-Year Inception**
California Chardonnay Simi $26.00 $23.12 $25.40 9.86% -0.09%
Dozen long-stemmed roses delivered $65.00 $129.07 $147.22 14.06% 3.32%
Godiva chocolates in heart box $70.00 $100.00 $100.00 0.00% 1.44%
Candlelight dinner $140.00 $266.00 $280.00 5.26% 2.81%
First run movie for two $12.00 $22.00 $22.00 0.00% 2.45%
One oz. Chanel No. 5 perfume $195.00 $325.00 $325.00 0.00% 2.06%
Valentine greeting card $1.75 $4.75 $4.75 0.00% 4.07%
Designer silk tie $60.00 $160.00 $160.00 0.00% 4.00%
Lingerie silk nightie $30.00 $68.00 $68.00 0.00% 3.33%
Total $599.75 $1,097.94 $1,132.37 3.14% 2.57%
*The “Cost of Loving Index” is prepared annually by Houston Asset Management, Inc., a registered investment advisory based in Houston.

**Annualized

Taking into consideration the hefty prices of goods and services during the holiday, the best economic decision is definitely to ignore Valentine’s Day altogether. However, consumers who are in romantic relationships must also gauge whether or not ignoring the holiday will put their relationships in jeopardy. In the end, it may be safe to assume that the most important relationships are worth splurging on.

Works Cited

Adshade, Marina. “What Is Creating “Valentine’s Inflation”?” Big Think. N.p., 14 Feb. 2012. Web. 15 Feb. 2015. <http://bigthink.com/dollars-and-sex/what-is-creating-valentines-inflation>.

Grannis, Kathy. “Cupid to Shower Americans with Jewelry, Candy This Valentine’s Day.” NRF. N.p., 26 Jan. 2015. Web. 15 Feb. 2015. <https://nrf.com/media/press-releases/cupid-shower-americans-jewelry-candy-this-valentines-day>.

McArthur, Neil. “Why It’s Better to Be Single on Valentine’s Day.” Time. N.p., 10 Feb. 2015. Web. 15 Feb. 2015. <http://time.com/3703157/valentines-day-single-is-better/>.

Scully, Sarah. “Valentine’s Day Sets a Price on Love.” Houston Chronicle. N.p., 9 Feb. 2015. Web. 15 Feb. 2015. <http://www.houstonchronicle.com/business/retail/article/Valentine-s-Day-sets-a-price-on-love-6071578.php#/0>.

“2015 “Cost of Loving Index” Shows Sharp Thorns With Three Percent Price Hike.” PR Newswire. N.p., 4 Feb. 2015. Web. 15 Feb. 2015. <http://www.prnewswire.com/news-releases/2015-cost-of-loving-index-shows-sharp-thorns-with-three-percent-price-hike-300030468.html>.

 

 

 

 

 

 

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2 thoughts on “The Economics of Valentine’s Day

  1. Interesting to read that there is actually a noticeable price difference between Valentines Day period and the rest of the year for those romantic items. You mention that this is likely due to the demand being elastic and also mention the impact that the change in consumer preferences for this special date. Is this not telling us that the demand around Valentines Day is very inelastic (consumers still purchasing despite price increases due to the Valentines Day preferences/taste change for consumers), but becomes elastic throughout the rest of the year, where these items are “more a luxury than necessity?”

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    • taylorqjohnson says:

      It is true that demand for “romantic” goods and services is more elastic during the rest of the year than it is around Valentine’s Day. However, I would argue that the elasticity of demand for these goods and services during Valentine’s Day depends largely on the availability of substitutes for these goods and services. Because there are many substitutes available for specific “romantic” goods and services around Valentine’s Day, the demand for many individual goods and services is still fairly elastic. However, if we look at the market for all romantic goods and services in general, it is true that the demand will be fairly inelastic. According to online sources, the increase in price of romantic goods such as roses around Valentine’s Day has little to do with elasticity of demand and more to do with the increase in demand for these goods.

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