The Effect of Valentine’s Day on Economy

Valentine’s day is a day of love, romance, and of course, the market process. On this special day lovers across the globe buy gifts for their sweethearts. A beautiful gift, roses. Pricey too, especially on Valentine’s Day.

The traditional gifts include chocolate and of course a girl’s best friend, jewelry. People are planning to celebrate Valentine’s Day with their lovers. In 2016, $19.7 billion spend on Valentines day, according to the National Retail Federation. That was a record year and exceeded the previous year record of $18.9 billion. In 2014, only $17.3 billion was spent, lower than the $18.6 billion spent in 2013.

This year, according to the National Retail Federation, Valentines day is estimated to contribute $18.2 Billion to the economy – meaning an average of $137 a person which will participate in this holiday. Less than the previous year, however, still a major contribution to the economy.

If you have ever bought fresh-cut roses, you may have noticed that their price varies considerably during the year. In particular, the price you pay for fresh-cut roses around Valentine’s Day is usually three to five times higher than at other times during the year. In total, An average number of 196 million roses are produces for Valentine’s Day.

This pricing behavior can best be understood as an application of comparative statics analysis. Every year, the market changes around Valentine’s Day. During the days before Valentine’s Day, demand for red roses increases dramatically, resulting in a rightward shift in the demand curve for roses.

Roses and flowers are not the only desirable Valentines Day purchases. The number one item is Candy with 50% of the people buy them and an amount of $1.7 Billion, greeting cards are also a popular gift as 47% share them in this special day resulting a $1 Billion contribution. 37% of the people are going out to restaurants or bars which comes out as $3.8 Billion contribution, flowers are in the fourth with 35% and $2 Billion and Jewelry is in the last place of percentage with 19% but with most significant amount of spending of $4.3 Billion.

Even though the prices are higher, the equilibrium quantity is also higher than it was before. This outcome does not contradict the law of demand. It reflects the fact that the Valentine’s Day equilibrium occurs along a demand curve that is different from the demand curve before or after Valentine’s Day.

This is a true example of supply and demand and market equilibrium at work. It is named “The Valentine Effect”

Yes, Valentine’s Day is also about money. It is still behind other holidays and way far from Christmas which stands on $75-$80 Billion a year. However, if we consider a good reason to spend our money, a nice gift to your sweetheart is probably a good investment.