"Armed with vaccines and pockets full of savings, Americans will soon be in the mood to shop for some new clothes. There's just one problem: Port congestion and snarled shipping since last year means store racks could have less selection or evengasp!last year's fashions.

Consumers across the board havemore in their savings accountsafter a year of spending less on travel, entertainment and restaurants and receiving three rounds of stimulus checks. Many are eager to spend on experiences they were deprived of during the pandemic, but they also have their eyes set on refreshing their wardrobes. In a recent survey conducted by Jefferies, when consumers were asked what category they would like to spend discretionary dollars on once the pandemic subsides, clothing and accessories came second behind bars, restaurants and pubs. Shoppers are already returning in healthy numbers: Same-store foot traffic at apparel and accessories retailers fully recovered to 2019 levels in the last week of March, according to data from ShopperTrak and Citi.

Retailers' in-stock levels are at a record lowa sharp contrast with last April when theirinventory-to-sales ratiospiked after pandemic-induced lockdowns. That ratio quickly dropped as retailers reopened, but they also canceled or postponed orders to adjust. Then, when retailers collectively started stocking up their inventory for the holiday season, port congestion issues compounded the shortage. As of January, retail stores had enough inventory to cover just over a month of salesa record low.

As much as the product delays will frustrate consumers, the effect on retailers themselves might not be so terrible. Many reaped higher gross margins lastholiday seasonbecause they planned conservatively and had relatively light inventory, yet shoppers still showed up. That meant fewer discounts.L Brands,Ralph Lauren, Under Armour and Capri, which owns Michael Kors and Versace, all saw their gross margins expand compared with a year earlier. Ralph Lauren noted that its average selling price grew 19% in its quarter ended Dec. 26 compared with a year earlier. Victoria's Secret owner L Brands was able to charge at least 30% more for lingerie in North America in its quarter ended Jan. 30 compared with a year earlier, while a sister brand, PINK, was able to command almost 40% higher prices.

"For the first time in a very long time, retailers have pricing power," notes Simeon Siegel, analyst at BMO Capital Markets. In that sense, low in-stock levels might actually be a hidden blessing for the retail industry if it means companies collectively steer away from pursuing heavy discounts. Higher selling prices would also allow retailers to soften the blow from shipping charges,which have surged."1

1. Other things being equal, if the elasticity of demand for lingerie is -1.5 when L Brands raises prices for lingerie in North America, will the revenue from sales of lingerie (price times the quantity of lingerie sold) increase or decrease? Explain your answer.
2. If the price elasticity of demand for a product is equal to zero, explain how the quantity demanded for the product will change if the price of the product is increased. Explain how the quantity demanded for the product will change if the price of the product is decreased.
3. If the price of clothing increases along the demand curve, will the absolute value of the slope of the demand curve increase, decrease or remain the same? If the price of clothing increases along the demand curve, will demand become more elastic, less elastic or remain the same? Briefly explain your answer.
4. From the article: "'For the first time in a very long time, retailers have pricing power,' notes Simeon Siegel, analyst at BMO Capital Markets." Would a firm have more pricing power if the demand for the product it sells is inelastic or elastic? Briefly explain your answer.