Question

a. why it’s illegal to sell but NOT to buy tickets at prices above those printed on the tickets.

**use the supply and demand analysis to explain why the equilibrium ticket price in an illegal secondary market tends to be higher than in a legal secondary market.**  

b. Post a thoughtful, well-worded response, a minimum of 8 sentences. Explain the two causes of market failures. Given their definitions, and discuss if the market can be affected by both types of market failures simultaneously, include an example if possible.

Answer 1

Ans a)

• Firstly, the Illegal market means market which is not authorised or not supported legally.So in this market seller should be punished for illegal work.
• Tickets cost tend to higher in illegal secondary market because of reducing supply relative to required supply in legal secondary market.thus, sellers faces higher cost and it impacted on ticket price.
• Illegal market also include additional costs.The additional cost means cost which is not levied in legal market and it is extra charged to sellers in illegal secondary market.
• Additional cost include to search secret location to transactions,screening clients,compensation for risk getting caught and monitoring for law enforcement.
• All this above reason price of ticket higher in illegal secondary market than legal secondary market.

Ans b) Two Causes of Market failure:-

1. Negative Externilities- Negative externilities means producer does not bear all cost of production, which result in excess production.If negative externilities cosidered,cost of widget would be  more.In negative externilities ,excess production not match with true cost of production.
2. Example- Air pollution ,Noise pollution,Traffic
3. In negative externilities ,cost of pollution imposed on third party without compensation.It means pollution created by factory but it is shared by society.
4. Demerits Goods- This are goods or products customer willing to pay higher cost than true cost.In this,true cost of products are underestimated.
5. Example-Alcohol,Smoking,Drugs
6. In demerits goods, addiction is key facor means though we know that smoking causes lung failure, we undervalue this reason.
7. If market affected by Negative externalities and Demerits goods simultaneously,it adverse effect on market and society.Both market failure undervalue true cost and it becomes unequilibrium condition in market.
8. This both causes of market failure can be solved by Legislation,Government control,Competition regulators.