Jingle All the Way

by | Mar 17, 2023 | economics

 

Watch the video clip from Jingle All the Way https://mediaweb.saintleo.edu/courses/ECO202/AVP/jingle.MP4. (View Transcript.)

Consider the following:
Prices serve a rationing function. When quantity demanded exceeds quantity supplied, prices rise to alleviate the shortage. When quantity supplied exceeds quantity demanded, prices fall to alleviate the surplus. However, when prices are inflexible, shortages and surpluses persist. Other rationing mechanisms must develop.
Using demand and supply analysis, describe a specific situation that you have witnessed where a shortage occurred. Why were prices unable to adjust in this market?
Combining what you learned from your readings as well as from the video clip, what other rationing functions could develop to alleviate that shortage?

 

 

 

Sample Solution

I have witnessed a shortage in the market for airline tickets during the holidays. Airlines offer limited amounts of discounted seats, and when they are sold out, prices can skyrocket due to high demand. During this time, prices are inflexible because airlines do not want to lose money by selling tickets at a discount nor do they want to be accused of price gouging customers.

Sample Solution

I have witnessed a shortage in the market for airline tickets during the holidays. Airlines offer limited amounts of discounted seats, and when they are sold out, prices can skyrocket due to high demand. During this time, prices are inflexible because airlines do not want to lose money by selling tickets at a discount nor do they want to be accused of price gouging customers.

In such circumstances, other rationing functions must develop since prices cannot adjust quickly enough to alleviate the shortage. For example, one rationing mechanism could be offering priority access or special privileges for customers who book early or those with more loyalty points accumulated from previous purchases. Airlines could also add more flights and increase seating capacity on existing routes if possible during peak times. Finally, airlines may take advantage of technology like dynamic pricing so that prices can be adjusted automatically depending on market conditions thus allowing them to better respond to changes in demand and supply conditions quickly.

This question has been answered.

Get Answer