A music arena sells 400 seats for a singer's only concert in a region. At the posted price of $50, 1200 people attempt to buy tickets online. The arena cons...
Question 1 Report
A music arena sells 400 seats for a singer's only concert in a region. At the posted price of $50, 1200 people attempt to buy tickets online. The arena considers using a higher price next time.
(a) What does the information suggest about the market at $50? [1]
(b) Explain how a higher ticket price could move this market towards equilibrium. [3]
(c) Analyse one reason why the arena might not increase the price despite excess demand. [2]
Answer Details
(a) There is excess demand, or a shortage of 800 tickets. [1]
Only 400 seats are available but 1200 people attempt to buy tickets:
\[1200-400=800\text{ tickets}\]
(b) A higher price could move the market towards equilibrium. [3]
- A higher ticket price reduces quantity demanded, since some consumers will no longer be willing or able to pay. [1]
- It may encourage an increase in supply if the arena can add capacity or arrange extra performances. [1]
- The difference between quantity demanded and quantity supplied then becomes smaller, moving the market towards equilibrium. [1]
(c) The arena may not raise price because it could damage its reputation or exclude lower-income fans, reducing future demand or causing negative publicity. [2]
For example, fans may view a large price increase as unfair. This could reduce their willingness to attend future events, so a short-run gain from higher prices may harm longer-run revenue and goodwill.
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