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Lower equilibrium price and a higher equilibrium quantity

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Reference no: EM132473196

Please carefully read the following passage and answer the questions mentioned below:

Aaron Hank is a star hitter for the Bay City baseball team. He is close to breaking the major league record for home runs hit during one season, and it is widely anticipated that in the next game he will break that record. As a result, tickets for the team's next game have been a hot commodity. But today it is announced that, due to a knee injury, he will not in fact play in the team's next game. Assume that season ticket-holders are able to resell their tickets if they wish. Use supply and demand diagrams to explain the following.

a. Show the case in which this announcement results in a lower equilibrium price and a lower equilibrium quantity than before the announcement. [Hint: you should shift both demand and supply curves. You need to figure out which curve will shift more than the other to give you the desired result. Please note that supply will change as they can resell the tickets]

b. Show the case in which this announcement results in a lower equilibrium price and a higher equilibrium quantity than before the announcement. [Hint: you should shift both demand and supply curves]

c. What accounts for whether case a or case b occurs? [Hint: You will have to explain which curve shifted more than the other and in which direction in part a and b]

d. Suppose that a scalper had secretly learned before the announcement that Aaron Hank would not play in the next game. What actions do you think he would take? [Hint: Mention scalper's decision on price to be charged]

Reference no: EM132473196

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