Question

Disequilibrium

(GRAPH each question, starting with equilibrium and then showing the shortage or surplus)

1. Can you explain the practice of scalping tickets for major sporting events in terms of market shortages? How else might tickets be distributed?

2. If rent controls are so counterproductive, why do cities impose them? How else might the housing problems of poor people be solved?

3. Who is harmed by rent controls? Who is helped?

4. What would happen in the apple market if the government set a minimum price of $2.00 per apple? What might motivate such a policy?

5. Is there a shortage of on-campus parking at your school? How might the shortage be resolved?

Answer 1

1. Scalping is the practice of reselling of tickets at a larger profit. During major sporting events we see that the tickets are limited and hence sell out quickly, but actually there is no natural shortage by this shortage is created to sell the tickets at a higher price and gain more profit. This can be understood from following figure.

It can be seen from the figure that an artificial shortage is created by shifting the supply curve to S1 and hence increasing the price to gain more profit by selling the extra tickets at a higher profit.

2. Rent control is a government program that places a limit on the amount that a landlord can demand for leasing a home or for renewing a lease. This is done in order to reduce the cost of living for poor, but this is counter productive as the competitive price for the rent or lease may have been higher than those fixed by government, even though the government impose them to help the poor residents. The other ways by which this problem can be solved are the government should try to increase their income so that they can afford those houses or the government should build their own residential complexes and lease them to the poor residents at lower price.

3. The landlords are harmed by the rent control as they get less rent for their houses but the poor residents who get houses at lower prices are benefited/helped by the law.

4. In the apple market, if the government sets a minimum price of $2 per apple, than the market price of apple can't fall below this level. and hence even though there will be increase in supply or decrease in demand which should decrease the price can't decrease it below $2 and hence there is excess supply at $2 in the market as shown in graph.

5. If there is a shortage of on campus parking at any school, this means that the demand for parking is higher than the supply of parking which may lead to a conclusion that the price of parking is lower than the equilibrium price. So in order to solve this problem if the parking capacity can't be increased, the price if parking must be increased because this increase in price will decrease the demand ( people who can't afford parking price will not bring their vehicle to school) and hence the shortage of parking will be eliminated and equilibrium will be reached at higher prices.