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Could yu please help me answer this question (it is about short run supply curve)

Asked by johnny2007 | Nov 6, 2007 | AS Level > Economics > Advice
johnny2007
johnny2007 asks:

Q1) A promoter has hired a stadium for a rock concert. explain why the short run supply curve for seats in the concert stadium is vertical and, using a SUPPLY AND DEMAND diagram to help you, anaylse the likely effect on this concert if the local council were to stage a similar event in a nearby park with no entry charge.

etutor answers:

The number of seats in the stadium is of course fixed, and cannot be increased in the short run. Hence the supply curve will be perfectly inelastic - in other words, a straight vertical line, positioned at the seating capacity on the horizontal axis. The demand curve for concert seats will be the normal downward sloping curve from left to right. Hence the equilibrium price will be where the demand curve intersects with the vertical supply curve.

If the local council staged the event in a local park, then the capacity is likely to be greater, though it is still finite - there would come a point where the park was full to overflowing, and no more people would be admitted, on safety grounds. Given that the concert is now free, the outcome depands on the number of people who choose to attend. If the concert is not particularly popular, then there will simply be lots of emty spaces in the park. If, however, the concert is very popular, then at a zero price there would be excess demand. It's the same diagram as above, except that the relevant distance on the quantity axis (the extent of the excess demand) is the distance between the fixed supply of seats/spaces and the demand curve where it touches the horizontal axis. Given that price is no longer being used as a rationing device, the seats/spaces will have to be allocated in a different way. The most likely possibilities are first come, first served on the day of the concert (with those arriving too late being turned away) or a ballot for the tickets which are then distributed to the successful applicants in advance.

I hope this is helpful.

1 student responses

johnny2007
johnny2007

Thank you very much

responded Nov 7, 2007 12:22:34 PM GMT
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todimu
todimu
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