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In: Economics

Uber has long been criticized for its use of surge pricing, setting prices based on current...

Uber has long been criticized for its use of surge pricing, setting prices based on current supply and demand factors, which, at times, results in a sudden and drastic increase in prices. In a Wall Street Journal article, the CEO of Uber was asked if we are seeing the end of surge pricing. His response: “. . . at the end of the day, Friday night is three or five times bigger than a Sunday night in any city around the world. And if you’ve got enough supply on the system so that we were perfectly supplied on a Friday night for as much demand as a city could ever throw at us, then the rest of the week you have drivers not making a living.”

a. Draw a demand and supply graph for Uber rides in Miami on a Sunday night. How does demand change on a Friday night? How does the supply of Uber rides change? Label the shortage of Uber cars that results on a Friday night without surge pricing.

b. Show what happens to consumer and producer surplus on a Friday night without surge pricing.

c. How does surge pricing change consumer and producer surplus?

Solutions

Expert Solution

Rahul Sunny answered 2 months ago
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