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Economic Evaluation Essay

1197 words - 5 pages

Economic coursework-
Question 1:The price of tickets for a major tennis tournament is fixed by the organising body. At the set price, many more people wish to attend the tournament than there are seats available. Use relevant diagrams to illustrate this situation and examine the likely consequences of such an intervention.

As the blossoming of tennis in the past ten years, more and more people are crazy about buying tickets to watch major tennis tournaments. According to the statistics, the seats in major competition such as wimbledon were all occupied by fans. At the set price, many more people wish to attend the tournament than there are seats available. This essay will illustrate the ...view middle of the document...

The fixed price is positive for government to control the average price thus expects to report a certain level of output in the market. In addition, buyers are willing to afford a relative low price. However, it would lead to illegal transactions in black market. Because the system of first comes first serve can give black marketers a leak to go there early and buy many tickets to sell in black market with a high price. According to the investigation of the tennis competition in London Olympic Games, the average price of tickets in black market is $379.12 which is $273.76 higher than the original price, which is negative for the society as a whole. Firstly, it will lead to an underestimation of the actual national income and GDP. For instance, the expected output is Q1Pc, but the tickets are offered at a higher price (say P2), then the real output will be Q1P2 which is lower than Q1Pc. Therefore, the government cannot indentify correctly the real economic status of the country and established proper policies to raise citizen’s living standard. Secondly, the transaction in black market will make government overestimate the unemployment rate. Because some people who are supposed to be unemployed may actually work in underground market. So government may waste many resources to provide jobs according to the fake unemployment data. Thirdly, it would lead to the emergence of tax problem. Government cannot know the income revenue of black market, so the tax will be failed to be collected. At this moment, government may increase tax rate to offset the losses. Some of the people who are tax payers may want to evade tax or they may lower the quality of goods to compensate the higher tax payment. In general, black market affects people’s living standard as well as welfare in terms of external cost on the society.
Regarding to the non-monetary consequences, nepotism will firstly be thought of. This means the workers who related to tickets selling may keep tickets for relatives, friends or regular customers, which result in an unfair phenomenon to other people. Secondly, as the relative low price with rationing attracts many people in waiting queue, and first come, first served system will develop the queue, which increases their opportunity cost by sacrificing time doing something else. In addition, low price means low profit, which cannot motivate suppliers to work hard and provide good service. Therefore, the quality of service and playing field may be deteriorated with time.
In order to solve these problems, we can divide the possible solutions into...

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