Effects of Price Controls
The accompanying table shows the demand and supply schedules for
concert tickets at Oracle Arena:
Quantities are in THOUSANDS
Ticket Price Q d Q s
$150.00 20 24
$135.00 22 22
$120.00 24 20
$105.00 26 18
$90.00 28 16
$75.00 30 14
a. Find the equilibrium price and quantity.
b. Suppose that the Oakland mayor sets a price ceiling of $105. How
large is the shortage of concert? Show on the
supply and demand diagrams, and also calculate the amount of ticket
shortage. Who loses and who benefits from this
policy?
c. Suppose that the stock market crashes, demand for concert
tickets plummet as a result. 6M less taxi rides
are demanded per year (shifting the Qd curve). What effect will the
mayor's new policy have now?
d. Suppose that the stock market skyrockets, as does the
demand. Now the mayor wants to ingratiate himself
with
the Oracle Arena and sets a $150 price floor.
Illustrate the effects of this policy on the market, and
determine the new price and quantity. What is the
deadweight loss?
a. The equilibrium will be at point where quantity demand and quantity supply are equal. In the given case at ticket price $135 quantity demanded for ticket is equal to quantity supply of ticket. That is- at $135 quantity demanded is 22 untis and quantity supplied is also 22 units, therefore equilibrium price is $135 and equilibrium quantity is 22 units.
b. When price is ceiling is set at $105, then demand will be 26 units and supply will be 18 units. At this poind demand will exceed supply by 8 units. The price will drop to $105 from $135, therefore seller will bear a loss of $30 ($135-$105).
Get Answers For Free
Most questions answered within 1 hours.