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Chapter 17: Problem 2

An economist gives the following advice to a museum director: "You should introduce 'peak pricing.' At times when the museum has few visitors, you should admit visitors for free. And at times when the museum has many visitors, you should charge a higher admission fee." a. When the museum is quiet, is it rival or nonrival in consumption? Is it excludable or nonexcludable? What type of good is the museum at those times? What would be the efficient price to charge visitors during that time, and why? b. When the museum is busy, is it rival or nonrival in consumption? Is it excludable or nonexcludable? What type of good is the museum at those times? What would be the efficient price to charge visitors during that time, and why?

Short Answer

Expert verified
Answer: During quiet times, the efficient price to charge is zero or a low price because the museum is nonrival in consumption and can accommodate more visitors without affecting the quality of the experience for others. During busy times, the efficient price to charge is a higher fee, as the museum becomes rival in consumption due to overcrowding, and the higher price helps regulate the number of visitors, ensuring a better experience for those willing to pay the higher price.

Step by step solution

01

A rival good is a good that cannot be enjoyed by one person without preventing someone else from enjoying it. A nonrival good is a good that can be enjoyed by many people simultaneously, without impeding each other's consumption. This is important in determining how the museum should be priced, as different pricing strategies are relevant for different types of goods. #Step 2: Understanding Excludable and Nonexcludable Goods#

An excludable good is a good that someone can be prevented from enjoying it if they don't pay for it, while a nonexcludable good is one that cannot be restricted from someone's consumption, regardless of whether they pay for it or not. This distinction is also vital in determining the appropriate pricing strategy for the museum. #Step 3: Analyzing the Quiet Museum Scenario#
02

a. When the museum is quiet#

During quiet times, the museum is nonrival in consumption since the low number of visitors doesn't interfere with each other's experience. It remains excludable, as the museum can still control access to its exhibits. At this point, the museum can be considered a club good. The efficient price to charge during quiet times is zero or a low price, as this encourages visitors to enter and enjoy the museum without causing congestion or reducing the quality of the experience for others. #Step 4: Analyzing the Busy Museum Scenario#
03

b. When the museum is busy#

When the museum is busy, it becomes rival in consumption as the high number of visitors can negatively affect each other's experience (e.g., overcrowding, long waiting times). The museum remains excludable, as access can still be controlled. In this situation, the museum becomes a private good. The efficient price to charge during busy times is a higher fee, as this will help regulate the number of visitors and ensure a better experience for those willing to pay the higher price. This "peak pricing" strategy aims to balance the demand for the museum during high-demand periods, ensuring a more enjoyable visit for everyone.

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