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Chapter 3: Problem 3

The market for many goods changes in predictable ways according to the time of year, in response to events such as holidays, vacation times, seasonal changes in production, and so on. Using supply and demand, explain the change in price in each of the following cases. Note that supply and demand may shift simultaneously. a. Lobster prices usually fall during the summer peak lobster harvest season, despite the fact that people like to eat lobster during the summer more than at any other time of year. b. The price of a Christmas tree is lower after Christmas than before but fewer trees are sold. c. The price of a round-trip ticket to Paris on Air France falls by more than \(\$ 200\) after the end of school vacation in September. This happens despite the fact that generally worsening weather increases the cost of operating flights to Paris, and Air France therefore reduces the number of flights to Paris at any given price.

Short Answer

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Question: Explain the change in price for each scenario using the concepts of supply and demand. Answer: a. The lobster prices fall during the summer because the increased supply of lobsters due to peak harvest season outweighs the higher demand for lobsters from people. b. The price of a Christmas tree is lower after Christmas due to the significant decrease in demand and sellers trying to clear their remaining stock even though the quantity of trees sold is also lower. c. The price of a round-trip ticket to Paris on Air France falls by more than $200 after the end of school vacation because the decrease in demand is stronger than the effect of reduced supply due to higher operating costs.

Step by step solution

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a. Lobster prices during the summer peak lobster harvest season

1. Analyzing the supply side: During summer, the peak lobster harvest season increases the supply of lobsters as more lobsters are caught and brought to the market. The increased supply tends to lower the price. 2. Analyzing the demand side: As people like to eat lobsters more during the summer, the demand for the lobsters is higher. This higher demand would generally tend to raise the price. 3. Combined effect on price: Although the higher demand should increase the price, the effect of increased supply is stronger in this case, and hence, we observe a decrease in lobster prices during the summer due to the ample availability of lobsters in the market.
02

b. The price of a Christmas tree after Christmas

1. Analyzing the demand side: Demand for Christmas trees decreases significantly once Christmas is over, as people no longer need to buy trees for decorations. The decreased demand results in a lower price. 2. Analyzing the supply side: After Christmas, the sellers must clear their stock of Christmas trees before they lose their value altogether. This forces them to sell at lower prices to get rid of the remaining trees. 3. Quantity of trees sold: Although the price is lower after Christmas, the quantity of trees sold will also be lower because the demand has dropped significantly and people are generally not interested in buying Christmas trees after the holiday.
03

c. The price of a round-trip ticket to Paris on Air France after school vacation

1. Analyzing the demand side: After the end of school vacations in September, the demand for flights to Paris decreases as fewer people want to travel during this time. This decrease in demand results in a downward pressure on the price of the round-trip tickets. 2. Analyzing the supply side: The worsening weather and increased operating costs lead Air France to reduce the number of flights to Paris at any given price, which decreases the supply of flights. This reduced supply would generally tend to raise the ticket price. 3. Combined effect on price: In this case, the effect of decreased demand is stronger than the effect of reduced supply due to higher operating costs. Hence, we observe a decrease in the price of a round-trip ticket to Paris on Air France by more than \(\$ 200\) after the end of school vacation.

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Most popular questions from this chapter

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