Question

Economics: Supply and Demand

USF issues parking permits to allow students to park on campus. The price of the permit is set by college administrators at their discretion, they do not consider market conditions. At the current price, some students complain that there aren’t enough spaces for them to park.

A) Describe this situation in economic terms and describe what this implies about the market equilibrium and the price of a parking permit.

B) Should the price of a parking permit be raised or lowered to fix this problem? Why? Explain.

C) Use the supply and demand model to describe how a graph of the market for parking permits would be affected by a change in price. You must include a graph and describe the graph.

PLEASE HELP !

Answer 1

We understand that there is not enough parking space for the students at the currently prevailing prices. This indicates that the current price is low and below the market equilibrium price which the market should be at. This creates shortage where the quantity demanded is higher than the quantity supplied at the price.

Thus, the price has to be increased in order to restore or reach the market equilibrium price where the quantity demanded will be equal to the quantity supplied without any shortage or surplus. If the price is increased, those who are not willing to pay a higher price will not bring the car to the campus which reduces the quantity demanded for the parking. This also mean that the market equilibrium will be eventually reached as the quantity demanded equals the quantity supplied.

We can see that the price set by the USF must be raised to reduce the current shortage of the parking spots. Price must be raised to reduce the quantity demanded against the maximum available parking spots. By raising the price, the market equilibrium will be reached.