Concept: Price elasticities, supply and demand, equilibrium
Background: In this clip, the Queen’s Necklace, which was given to Marie-Antoinette by Louis XVI, is auctioned off, with a starting price of 17 million euros. Assane Diop starts with a bid of 33 million euros, and ends up purchasing the necklace for 60 million euros. The necklace behind the episode is, in fact, real. The so-called “affair of the necklace” was a scandal that discredited the French monarchy in 1785, on the eve of the French revolution. The jewelry was comprised of 647 diamonds weighing 2,840 carats (Lever, 2013).
Question 1: What is the value of the price elasticity of supply for the Queen’s Necklace? Explain why the necklace is sold for much more than its intrinsic value.
Question 2: Draw the supply curve for the Queen’s Necklace. Suppose the demand curve is: . What is the equilibrium price?
Background: Player 111, a doctor, agreed to remove transplant organs from deceased players so that staff members could sell them on the black market. As in many other countries, selling transplant organs is illegal in South Korea. Instead, organs are typically donated by live donors when possible or by families after a relative passed away. Such a prohibition is equivalent to a price ceiling of 0 won on human organs. In 2019, there were 32,560 potential organ recipients on Korean waiting lists. Of these, only 1,612 patients received an organ donation.
Question: Using a supply and demand diagram, describe the effects of a price ceiling on the market for human organs available for transplant. Is the demand curve perfectly inelastic? Analyze the effects of legalizing the purchase and sale of human organs. Include ethical considerations into your analysis.
Concepts: Shortage, price elasticity of demand, arbitrage possibility, black market.
Background: Jet wants to offer his daughter a rare and expensive doll. However, stocks are minimal, and the doll is available in only a few stores. Besides, the doll is not available in any stores where Jet currently is. However, an illegal reseller has one for sale for five times the price. Given how important the doll is for Jet’s daughter, he purchases the doll from the illegal reseller.
Question 1: From this situation, explain why the doll’s market is not at equilibrium and instead exemplifies a shortage. Could shortage encourage the development of a black market economy?
Question 2: After defining the concept of price elasticity of demand, draw two demand curves that represent the demand for this rare doll and the demand for a regular doll.
Background: Mia and Niklas discuss Jasper’s situation. He must work ridiculously long hours to access his experimental treatment for his Huntington’s Disease. They also discuss the cost of such a treatment for other patients.
Question: Why are drugs for rare and lethal diseases often very expensive? Discuss the economic mechanisms that aggravate the problem.