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with supply and demand?
What does trying out for a high school
sports team have to do with supply and
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
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.
- Winter '14