In Rolling Stone magazine, several fans and rock stars, including Pearl Jam (or

Question

In Rolling Stone magazine, several fans and rock stars, including Pearl Jam (or your favorite band), were bemoaning the high price of concert tickets. One superstar argued, “It just isn’t worth $75 to see me play. No one should have to pay that much to go to a concert.” Assume that this superstar sold all of the tickets in arenas around the country at an average ticket price of $75.

Note: the drawing of supply and demand curves is not required to answer questions       b – e. You can explain in a few sentences, such as the demand will increase/decrease, causing a rightward/leftward shift of the demand curve, causing market prices to increase/decrease and market quantity to increase/decrease.

How would you evaluate the argument by the superstar that ticket prices are too high? Explain in a sentence or two

Suppose that due to this star’s protests, ticket prices were lowered to $50. In what sense is this price too low? Why? You may draw a diagram using supply and demand curves to support your argument and/or explain in a few sentences.

Suppose Pearl Jam really wanted to bring down ticket prices. Since the band controls the supply of its services, what do you recommend they do? Why? You may draw a diagram using supply and demand curves to support your argument and/or explain in a few sentences.

Suppose the band’s next CD was a total dud or failure and did not sell very well at all. Do you think they would still have to worry about ticket prices being too high? Why or why not? You may draw a diagram using supply and demand curves to support your argument and/or explain in a few sentences.

Suppose the group announced their next tour was going to be their last. What effect would this likely have on the price of tickets? Why? You may draw a diagram using supply and demand curves to support your argument and/or explain in a few sentences

Explanation / Answer

1) The argument given by the superstar that ticket prices are too high can be evaluated on the basis of elasticity of demand. With increase in price the demand will reduce. And When demand of a good is elastic then a percentage increase in price of that good decreases the quantity demanded by more than percentage increase in price. This makes the total revenue decrease when price increases. Thus given that demand of concert to see a star playing would be elastic then if prices are raised too high then it will give too little total revenue. hence the superstar was saying it is not worth to increase much price as the total revenue will decrease at high price.

2) When price reduces to $50 it could not be able generate enough revenue then it was able to when the price was higher than $50 but less than $75. IN other words when price gets too low then at that point demand could be inelastic given that even lowering the price will not increase much demand and hence the total revenue decreases. Thus it could be said that at $50 demand elasticity would be inelastic and at $75 it would be elastic hence reducing TR at both level but in between (let say $60) it could be able to generate more total revenue.

3) When supply of a good increases, with given demand not changed, then the price reduces as the supply curve shifts. Thus when the band starts giving more performances then the supply will increase and the supply curve will shift upward. This will make a new equilibrium where the new price will be lowered than the old one.

4) When the latest CD became a failure it implies that the taste of consumers changes or the music was not as per the taste of the consumers. It will reduces the demand and will shift the demand curve to downward. this downward shift of demand will cause new equilibrium where the new price will be lower than the old one. Hence the band will now have nothing to do to reduce the price.

5) Declaraing that the band's next concert will be last implies that they are now cutting off the supply of the good. Thus with such restriction on supply the demand of band will increase and shift to upward causing new equilibrium where the price will rise.

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