Answer to Question #126086 in Economics for chelsea

Question

Billy is a star player for the Los Angeles Lakers basketball team. He is close to breaking the major league record 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. b) Show the case in which this announcement results in a lower equilibrium price and a higher equilibrium quantity than before the announcement

Answer 1

We show the situation before the announcement. In the diagram, the blue graph represents the demand graph, the green graph represents the supply graph.

a) If supply does not change and demand decreases, this will lead to a decrease in the equilibrium price and a decrease in the amount of equilibrium.

b) If demand does not change and supply increases, then this will lead to a lower equilibrium price and a higher equilibrium quantity.