Watch the video clip from Jingle All the Way. (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 once witnessed a shortage occur in the market for concert tickets to a popular artist’s show. The demand for tickets was high and far exceeded the supply of available seats, so buyers were unable to purchase more than one ticket, even at higher prices. Prices could not adjust in this market because scalpers had snapped up most of the tickets before they went on sale to the public at face value. These scalpers then resold those tickets on secondary markets such as StubHub or Vivid Seats at much higher prices, preventing prices from adjusting downward due to increased demand. This created an artificial scarcity that prevented many fans from attending the concert despite higher willingness-to-pay levels.