Question

Why are shortages or surpluses more likely with preset prices, such as those on tickets, than with flexible prices, such as those on gasoline?

Answer 1

Answer) There are two important concepts which we will use to answer this question,first is concept of demand and supply and second is willingness to pay,when we talk about concept of demand and supply,we see surplus if supply is more than demand while shortage is there if demand is more than supply,now willingness to pay is your ability to pay as well as how much would you want to pay maximum for a product,so for example let us say there is a football match between two unknown teams with not much hype and ticket prices are fixed at $20,while most people would maximum pay $10 for it,so the result will be empty stadium or surplus in other words,now consider final of Fifa world cup and price per ticket is fixed at $10,000;now most people would be willing to pay much higher and result will be shortage;now consider this with flexible price product,flexibility will allow organizers or providers to estimate demand and charge prices accordingly leading to negligible surplus or shortage,in fact this is the case we see with lot of businesses who do surveys for willingness to pay and keep their prices in that range only,thus willingness to pay is a barrier with fixed price products or events or services creating surpluses and shortages.

Answer is complete.Thank you!