Question

A large group of fans are upset about the high price of tickets to many events. As a result of their lobbying efforts, a new law caps the maximum ticket price to any sporting event at $50. Assume there are a fixed amount of seats in the stadium, all seats are available to be sold, and the price of tickets before the ceiling was at an equilibrium point above $50.The price ceiling will create a ___________ of tickets, which will be greater if demand is more _______________, and _________ people will attend the events.
a. surplus; elastic; more
b. shortage; inelastic; fewer
c. shortage; elastic; the same number of
d. surplus; elastic; fewer

Answer 1

Answer:

C. shortage; elastic; the same number of

Explanation:

The law of demand states an inverse relationship between quantity demanded of a good and it's price.

Price elasticity of demand refers to the degree of responsiveness of quantity demanded to a change in price. When quantity demanded changes less relatively to change in price, it is termed as inelastic demand while when the change in quantity demanded is lot more than the change in price, it is termed as elastic demand.

In the given case, after the upper limit price has been capped and fixed, this would create a rush and tickets for the sports events would be sold off since the quantity demanded would rise.

This would result into a shortage since demand shall exceed supply and since the price cannot be raised above $50.

The more elastic the demand, more shortage of tickets it would result into and the same number of people will attend the events i.e the seating capacity is not increased.

Answer 2

Answer:

C) Shortage ; Elastic ; Same number of

Explanation:

Usual market are at equilibrium when : Market Demand = Market Supply. Upward sloping supply curve (due to law of supply) & Downward sloping demand curve (due to law of demand) intersect each other.

Price Ceiling is maximum mandated sale price by government, selling above which is prohibited. It is usually created below equilibrium price, to protect the interest of buyers.

As supply & demand are respectively positive & negative sloping, lower price decreases supply & increases demand. This creates excess demand or shortage.

Price Elasticity is responsiveness of demand due to change in price. If it is more, demand would change more due to price change. So, shortage would be more in this case.

As, there is excess demand - all the tickets would be sold, the same number of people would still attend the events (as the hall occupancy is same).