What is the necessary condition to earn a high income

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Unformatted text preview: do with supply and demand? What does trying out for a high school sports team have to do with supply and demand? What is the necessary condition to earn a high income? You learned earlier that a market shortage causes price to rise. Eventually, it will rise to its equilibrium level. The problem in the rock concert example, though, is that the tickets were bought and sold before the seller realized a shortage of tickets would occur. In hindsight, the seller knows that the price charged for the tickets was too low, and this pricing caused a shortage. If the seller had charged the equilibrium price, he would have encountered no shortage, no long lines, and no one turned away without a ticket. As shown in Exhibit 6-6, the seller charged $40 a ticket. At this price, quantity demanded (12,500) was greater than quantity supplied (10,000). If the price had been $60 a ticket, quantity supplied (10,000) would have equaled quantity demanded (10,000), and no shortage would have happened. Why didn’t the seller charge the higher equilibrium price, instead of a price that was too low? The seller might have charged the equilibrium price had she known it. Think back to the auctioneer example. Note that the auctioneer did not call out the equilibrium price at the start of the auction. He called out $6, which was too high a price, 11/21/05 3:13 PM Page 141 which created a surplus. Later, he called out $2, which was too low a price, causing a shortage. It was only through trial and error that the auctioneer finally hit upon the equilibrium price. Because people come to the grocery store and electronics store to buy goods every day, those stores have countless opportunities to learn by trial and error and adjust their prices to reach equilibrium. The seller of the rock concert tickets did not have the same opportunity. EXHIBIT month, scalpers were selling tickets for at least $50 more than the original price of the ticket. Tickets that were initially sold for $60 were being sold by scalpers for $110. Aren’t the scalpers, in a way, like the auctioneer? ANSWER: Yes. Look again at Exhibit 6-6. We can see that the equilibr...
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This document was uploaded on 01/16/2014.

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