The United States Postal Service (USPS) is one of the few businesses that operates with the following business model: as its costs increase… it simply raises its prices based on inflation. Not surprisingly, you will find that this strategy is not working in the favor of the USPS, and ultimately, not in the best interest of U.S. taxpayers. The USPS is currently experiencing severe financial problems.

Directions:

• Answer each question in your own words (paraphrase).

1. Do you think the demand for first-class postage stamps in the U.S. was relatively price elastic or relatively inelastic in 1980? Do you think the current demand is relatively price elastic or relatively inelastic? Explain why there may have been a change in the relatively price elasticity in the last 30+ years. (Hint: How has technology changed price elasticity?)

2. Given your answer for (1), should the USPS increase, or decrease, the price of first-class stamps in order to increase its total revenue? Explain why this increase, or decrease, in the price will lead to an increase in total revenue. (Hint: How is price elasticity important?)

3. Go online and research information regarding the USPS’s financial situation. What have been the USPS’s profits, or losses, in the last 3-5 years? What are the projected profits, or losses, in the next 3-5 years? Be specific and make a table with annual estimates.

4. As a manager, what recommendations would you make to improve the USPS’s current and projected financial situation? What are labors costs as a percentage of total costs? How would you address these issues given that the USPS’s workers are heavily unionized? Be specific. (Note: Students are expected to write more than a few sentences for their answer.)

5. What would it mean to privatize the USPS (use positive statements)? What is your personal opinion regarding the USPS and privatizing the USPS (use normative statements)?

6. What were some causes of the U.S. Postal Strike of 1970? What resulted from the strike?

Were there lasting effects from the strike that affect the USPS today? Should the federal (or a state) government grant public employees the rights to organize, picket, and strike?