Download QUESTIONS FOR DISCUSSION

QUESTIONS FOR DISCUSSION
1.
What does the supply and demand for human kidneys look like? If a market in
kidneys were legal, who would get them? How does a law prohibiting kidney
sales affect the quantity of kidney transplants or their distribution?
The need for kidneys is medically determined and therefore price is not an
issue. Anyone who has kidney disease and is in need of a kidney
transplant is part of the market demand for kidneys. The demand curve for
kidneys would be vertical line, illustrating its lack of responsiveness – zero
elasticity – to a change in price.
On the other hand, the quantity supplied of kidneys would increase as the
price increased. As the price increased, more people would be willing to
give up a kidney. However, the quantity supplied would probably not
increase very much as price increased due to the risks involved in the
surgical procedure to remove a kidney and the fact that the donor would
only be left with one kidney. The supply curve would start out at the point
on the x-axis at the quantity that is currently available at a price of zero.
These are mostly from people who have died and have signed organ donor
cards. This quantity is lower than the quantity demanded and therefore
results in a shortage of kidneys when their sale is prohibited by law.
If a market in kidneys were legal, the people who are most likely to get the
kidneys are those who are willing and able to pay the going market price.
People who do not have insurance or who cannot afford to pay the market
price will do without.
A law that prohibits kidney sales reduces the quantity of kidneys
transplanted because the law reduces the quantity supplied of available
kidneys. The allocation of kidneys relies on legal distribution through
registered organ banks and on the black market for kidneys.
2.
In the web-tutoring market, what forces might cause
a.
A rightward shift of demand?
b.
A leftward shift of demand?
c.
A rightward shift of supply?
d.
A leftward shift of supply?
e.
An increase in the equilibrium price?
a.
b.
An increase in any of the determinants of demand for web-tutoring
would cause the demand curve to shift right. Examples include: an
increased desire to create websites, increases in income resulting in
more people purchasing computers and connecting to the web, decreases
in the prices of computers resulting in more people purchasing
computers and connecting to the web, decreases in the price of monthly
web connection fees, and changes in the expectations of how many
people will be accessing the web.
A decrease in any of the determinants of demand for web-tutoring would
cause the demand curve to shift to the left. Examples would include: a
c.
d.
e.
decreased desire to create websites, decreases in income resulting in less
people purchasing computers and connecting to the web, increases in the
prices of computers resulting in less people purchasing computers and
connecting to the web, increases in the price of monthly web connection
fees, and changes in the expectations of how many people will be
accessing the web.
An increase in any of the determinants of supply for web-tutoring would
cause the supply curve to shift to the right. Examples include:
improvements in technology that make it easier to design websites,
decreases in the prices of computers and web design software, a
decrease in taxes on web design income, increases in expectations
income generated through web design, increases in the number of sellers
of web-tutoring.
A decrease in any of the determinants of supply for web-tutoring would
cause the supply curve to shift to the left. Examples include: increases in
the prices of computers and web design software, increases in taxes on
web design income, decreases in expectations of income generated
through web design, decreases in the number of sellers of web-tutoring.
An increase in the equilibrium price of web services can be caused by
either an increase in demand or a decrease in supply, ceteris paribus.
3.
Did the price of tuition at your school change this year? What might have caused
that?
In almost all cases, the price of tuition at colleges and universities
increased last year. A market explanation of this price increase would
include an increase in the demand for a college education as more and
more high school graduates decide to go to college. In addition, the cost
of providing that education, such as salaries of faculty, staff, and
administration, heating and cooling, rent on buildings, etc., all
increased, causing supply to decrease.
4.
What was the market situation for the 1992 and 1997 U2 concerts (pp. 72 and
74)?. Why didn't the concert promoters set an equilibrium price?
The stories illustrate examples of a ticket prices that were set at a levels
other than the market clearing equilibrium price. In the first Headline, the
$28.50 face-value price is well below the $150 the students suggest they
would pay if they were employed full-time or the $1,200 ticket price for
prime seats paid in Los Angeles. In the second Headline, the prices were
set too high, i.e., above the equilibrium price, resulting in a surplus. The
promoters did not set an equilibrium price possibly because they set a
market clearing national ticket price, i.e., a common price for all tickets
for the national tour, but each individual market has its own equilibrium
price depending on local conditions. It is also possible that they
miscalculated demand for the concert tickets, thus setting the wrong price
for the tickets.
5.
When concert tickets are priced below equilibrium, who gets them? Is this
distribution of tickets fairer than a pure market distribution? Is it more efficient?
Who gains or loses if all the tickets are resold (scalped) at the market-clearing
price?
When tickets are priced below equilibrium, tickets are often distributed
initially on a first-come first-serve basis. It is often the case that these
people then resell their tickets at a higher price for a profit. Whether the
distribution of tickets is fairer than a pure market distribution system
depends on your point of view. If you have the time to stand in line early,
or redial the phone continually until you get in on the telephone order
line, you probably think the system is fair. If you do not have the time for
these activities, you probably think the system is unfair. This system of
distribution is less efficient in that the tickets are not being sold for their
market value. If all of the tickets are resold at the market-clearing price,
then there are mostly gainers. Those people who originally purchased the
tickets gain because they sell $28.50 tickets for a higher price and they
earn a profit. Those people who purchase the tickets at a higher price
gain because they are able to acquire tickets that they otherwise would not
have been able to purchase. There are some people who may not be able
to afford to pay the market-clearing price and thus cannot purchase the
tickets.
6.
Is there a shortage of on-campus parking at your school? How might the
shortage be resolved?
Most schools have an on-campus parking shortage. This shortage could
be resolved in a number of ways. A non-market solution would be for the
campus administration to intervene and restrict the number of cars
allowed on campus. For example, some schools do not allow first and
second year students to bring cars on campus. This method, of course,
harms first and second year students who would otherwise bring cars to
campus. A second method would be to utilize the market and sell parking
privileges. If the price of parking permits is set appropriately, the parking
problem will be resolved. Only those students who perceive the benefit of
parking to be greater than or equal to the cost of parking will purchase
the parking permit. Those who do not believe the benefits received from
parking on campus are worth the price will either not bring cars to school
or will park off campus.
7.
If departing tenants sell access to rent-controlled apartments, who is likely to end
up with the apartments? How else might scarce rent-controlled apartments be
distributed?
If departing tenants sell access to rent-controlled apartments, the people
who end up with the apartments are those who can most afford to pay the
access fee. An alternative to this distribution system might be to set up a
means test, i.e. have a maximum income requirement for rent-controlled
apartments. People who exceed the maximum income could not have
access to the apartments
8.
If rent controls are so counterproductive, why do cities impose them? How else
might the housing of poor people be solved?
Where the leaders of a city have both a commitment to solving the housing
problems of the poor and the political pressures to act quickly, rent
controls do the job. They immediately put a lid on rents. Because this
interference with the market decreases the profitability of rental housing,
rent controls also tend to bring construction of new rental housing to a
halt, so that the long-run housing problem will still exist. An alternative
approach would be to utilize the market by either subsidizing the rents of
low-income people, thereby enabling them to pay the “high” rents or
subsidizing landlords, thereby increasing supply and lowering rents to a
more acceptable level. Cities also increase the supply of rental housing by
creating government-owned public housing.
9.
In 2003, Cruz Bustamante, the lieutenant governor of California, proposed a price
ceiling on gasoline. Is this a good idea?
A price ceiling – a government-mandated below-equilibrium price – will
result in a shortage. Gasoline will then have to be allocated by something
other than price, most likely first-come, first-served. This will cause lines
to form at the gas stations, and people will horde gasoline, trying to keep
their tanks as full as possible. Price ceilings are generally disruptive and
inefficient. If the problem is that gasoline prices are perceived as being
“too high,” then it would be better to work within the market system to
bring the price down, by either increasing supply, decreasing demand, or
both.
10.
Why did Sony set the initial price of the PlayStation 2 below equilibrium (see
Headline, P. 73)? Should Sony have immediately raised the price?
Sony might have been setting the price of their PlayStation2 based on a
long-term pricing strategy rather than a short-term pricing strategy. The
resale market price for PlayStation 2s easily reached $600 during the
2000 Christmas season. Although their initial price of $299 was well
below the equilibrium price during the Christmas season for 2000, Sony
expected consumer demand and supply to reach an equilibrium level well
below this level after the Christmas season was over. Instead of alienating
consumers on this new product, they set a price that allowed consumers
who were willing and able to purchase the product at $299 to have access
to the product while still enticing other potential consumers with the
possibility that the price would drop after Christmas. In so doing, they
kept potential consumers in the market waiting for the shortage to be
alleviated. They also were able to use the shortage as a marketing
strategy to demonstrate their product to would-be buyers.