Question

Every four years there is a shortage of tickets for soccer’s World Cup at the official prices Po. Generally, a black market(known as scalping) develops in which tickets are sold for much more than the official price. Use supply and demand analysis to answer the following questions: a.What does the existence of scalping imply about the relationship between the official price Po and the equilibrium price? b.If the official price Po were lowered, how would the average black market price be affected? c.If stiff penalties were imposed for scalping, how would the average black market price be affected?

Answer 1

A) The existence of scalping or resale of tickets in black markets suggests that the official price is much lower than the market equilibrium price, since at the official price demand exceeds supply, leading to shortage in the market.

B) Yes, the average black market price would increase even further since the lowering of official price would increase shortage of tickets even more.

C) If stiff penalties were imposed for scalping, average black market price would increase even further to filter out the demand and reduce demand to sell tickets to only a few buyers at very high prices and maintain confidentiality.