Application 1 ECON203 Microeconomic Analysis (Session 2, 2018) Application assessment 1 Ticket scalping/re-sale Something I’m sure we’ve all experienced is the frustration that comes with trying to...

ECON203

Application 1 ECON203 Microeconomic Analysis (Session 2, 2018) Application assessment 1 Ticket scalping/re-sale Something I’m sure we’ve all experienced is the frustration that comes with trying to purchase tickets online for a big event (concert, sporting fixture etc) only to see all the available seats sold in a shockingly short time, and before we even get a chance to purchase any. It doesn’t help those feeling to see tickets that we feel we could have bought appearing almost instantly on eBay or other re-sale avenues. Consider the following discussions of the topic: • ‘The economics of ticket scalping’ • ‘The man who broke Ticketmaster’ What are the relevant welfare effects of ticket scalping/re-sale (note that the choice of descriptor is not neutral)? Who is made better and worse off by the existence of this activity, and how are the gains and losses distributed? Thinking back to the discussions around ethics in ECON111, are there fairness considerations that would justify government action (or costly private action e.g. purchase requirements that would lock out scalpers) even if ticket re-selling increases the gains from trade?1 At times, grocery retailers have attempted to restrict bulk-buying of infant formula, as described in this story: • ‘Coles moves baby formula behind the counter after china bulk buy’ Are these cases comparable? Why, or why not? 1Not that I’m questioning your memory or anything, but think about the distinction between the consequentialist and the deontological approaches to evaluating moral outcomes J Tutorial 3 questions ECON203 Microeconomic Analysis (Session 2, 2018) Tutorial 3 N.B This is economics – diagrams are always your friend Diah uses two medicinal products to manage an ongoing condition: Floxudiene and Gluconam. Floxudiene is currently in the Pharmaceutical Benefits Scheme (PBS) and so it is subsidised. Its retail price is $40 per unit, but Diah only has to pay $20 per unit. She currently uses 150 units per year. Gluconam is not covered by the PBS and sells for $50 per unit. Diah currently consumes 100 units of Gluconam per year. Following changes to the PBS scheme, it is announced that Floxudiene is being removed from the scheme, and will now sell at $40 per unit. Gluconam will be included in the PBS for the first time and will sell at the subsidised price of $20 per unit. The government implements a scheme to compensate those affected by the price changes to Floxudiene and Gluconam. Diah is informed that she will receive no compensation as she has judged not to have been affected. When she enquires further she finds that the government used the Laspeyres measure to determine compensation amounts. 1. Assuming that Diah has smooth convex preferences, illustrate her situation and show why the government came to the decision it did. What problems are there with this decision? 2. Indicate an optimal bundle for Diah after the price changes, and show alternative measures of her welfare change, based both on expenditure and utility. Is there a way to say what her change in welfare really is? 3. Imagine that in fact Diah is required to combine 3 units of Floxudiene and 2 units of Gluconam in every dose in order for the medicine to be effective. Indicate the welfare measures previously shown in Questions 1 and 2. How would the government’s decision look in this case? What does this tell us about economic welfare and price changes?