Question

A certain university issues parking permits to allow students to park on campus. The price of the permit is set by college administrators at any price they choose; they do not consider market conditions. At the current price, some students complain that there aren’t enough spaces for them to park.

1. Describe this situation in economic terms and describe what this implies about market equilibrium and the price of a parking permit.

2. Should the price of a permit be raised or lowered to fix this situation?

3. Use the supply and demand model to describe how a graph of the market for parking permits would be affected by a change in price. Do not submit a graph as part of your response, however.

Answer 1

1. In economic terms, this situation mirrors the fact that the demand for parking spaces outstrips the supply, showing the market shortage for the university's parking spaces, which has not reached the equilibrium point at the set price of a parking permit.

2. Raising the price of a permit to create a market equilibrium can help fix this situation as demand would be forced to reduce to meet the limited supply.

3. A graph of the market for parking permits would be affected by a change in price through a downward shift of the demand curve, while the supply curve remains constant in the short run.

What is market equilibrium?

Market equilibrium is a market situation where demand and supply are equal.

The price that achieves a market equilibrium is known as the equilibrium price.

At the equilibrium point, demand does not exceed supply.

Thus, market equilibrium can be achieved by raising the price of a parking space, thereby reducing demand.

Learn more about market equilibrium at https://brainly.com/question/24754736

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