Background: In this clip, the Queen’s Necklace, 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: Q = 100 – 1.65P. What is the equilibrium price?
Question 3:The Queen’s necklace was sold during an auction. However, this is not how we typically purchase our goods and services, not even jewelry. Most people buy those in stores where the price is already defined and usually with a price tag. Why are unique pieces of jewelry, such as the Queen’s necklace, typically sold during an auction? How does that differ from going to the jewelry store?
Background: Sacred Games was shot in Mumbai, and several scenes show different views of the city. For several decades after 1947, existing rents were frozen. In 1999, the Maharashtra Rent Control Act was passed, allowing landlords to increase rent by 4% per year. Rent remained extremely low compared to market value. Sacred Games exposes some of Mumbai’s slums.
Question 1: Is rent control an example of a price ceiling or price floor? Explain the concepts. What are the unintended consequences of rent control that you may have noticed in Sacred Games? Are these similar to the ones predicted by economic theory?
Question 2: Use the supply and demand analysis to explain how rent control led to a shortage of dwelling units, which in turn resulted in a growing number of slums. Research population growth in Mumbai and discuss its impact on the shortage issue. You can use the following website: https://www.macrotrends.net/cities/21206/mumbai/population.
Concept: Vertical Supply, Shifts In The Demand Curve
Background: The season’s penultimate game was critical for the Cuervos qualification to the playoffs. Unfortunately, after that game, the Cuervos were eliminated. However, the Cuervos still had to play the last game of the season.
Question 1: Think about the Cuervos’ stadium and ticket sales. Let’s consider that the capacity of the Nuevo Toledo stadium is 30,000 spectators. Draw the supply curve of one Cuervos game’s tickets.
Question 2: Explain how the demand for tickets changes between the two games. Draw a supply and demand diagram representing this change.
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 passes 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 (data from the Korean Network for Organ Sharing – KONOS). Of these, only 1,612 patients received an organ donation. Network for Organ Sharing. 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 in 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.