Question

4. The following gives some fake data for the quantity of flights from NYC to LA on December 1" demanded and supplied. Price Quantity Demanded (hundreds) Quantity Supplied (hundreds) $100 $200 $300 $400 $500 $600 a. Graph the supply and demand curves (your drawing does not have to be exactly to scale) b. Find the equilibrium price and quantity. c. Why is $500 not the equilibrium price for this market? d. Suppose Thanksgiving is postponed until December 2d. How would this affect the market for flights from NYC to LA on Dec 1s? e. Disregarding part d, if the government, in an attempt to lower prices for consumers, sets a maximum price of S300 for all flights from NYC to LA, how many people would end up still purchasing tickets? Is this a price ceiling or a floor? f. Assume the price control mentioned in parte is still in effect, if consumers are able to resell their tickets, what will be the going price for black market tickets?

Answer 1

a.

70 Price(s) Quantity Quantity supplied 100 80 200 300 400 500 600 50 Price($) -Quantity demanded Quantity supplied - 0 20 80 100 40 60 Quantity (hundreds) Sheet Sheet2 Sheet3 Type here to search

b. The equilibrium quantity is 45 hundreds and the equilibrium price is $400. This can be seen in the graph where the demand curve and the supply curve intersect is the point (45,400).

c. $500 is not the equilibrium price because at this point, quantity demanded is not equal to quantity supplied.

d. If Thanksgiving is postponed to December 2nd now, the quantity of flights demanded from NYC to LA on Dec 1 would decrease. But the quantity supplied would not decrease one day is a very short period and airline companies cannot quickly adjust their supply curve. Hence the demand curve would move to the left, decreasing the equilibrium price and quantity of flights from NYC to LA on Dec 1.