Question

A common feature of skiing is waiting in lift lines. Does the existence of lift lines mean that the price is not working to allocate the scarce resource? If so, what should be done about it?

Short answer

Explain your reasoning. Answer: Yes, ski lift lines indicate that the price mechanism is not efficiently allocating the scarce resource of ski lift rides. This is because long lines suggest that the price is too low, leading to excess demand, or that the capacity of ski lifts is insufficient to meet demand. Instead, the scarce resource is being allocated through waiting time, which may not necessarily reflect the true willingness to pay of skiers. To improve the allocation of ski lift rides, recommendations include implementing dynamic pricing, increasing capacity, or introducing a reservation system.

Step-by-step solution

Understand the concept of efficient allocation of scarce resources

Efficient allocation of scarce resources occurs when resources are distributed in such a way that no one can be made better off without making someone else worse off. In other words, using the resource in the best possible way to maximize the overall benefit from it.

Analyze the existence of ski lift lines

Ski lift lines could be seen as an indication that the price mechanism isn't efficiently allocating resources because if the price were equal to the willingness to pay for getting on the lift (without a wait), then there would be no excess demand and hence no lift lines. Some possible reasons for the existence of lift lines can be: 1. Underpricing: The price set for ski lift rides might be too low, causing an excess of demand over the available capacity. 2. Limited ski lift capacity: The ski resort may not be able to provide an adequate number of ski lifts to meet the demand at peak times. 3. Rationing by waiting: Instead of using price to allocate the scarce resource, ski resorts might be using waiting time as a rationing method. In this case, people who value their time less will be more willing to wait, while those who value their time more might leave.

Recommendations to improve the allocation of ski lift rides

In order to address the issue of ski lift lines and better allocate the scarce resource, the following recommendations can be considered: 1. Dynamic pricing: Implement a dynamic pricing model that adjusts prices depending on demand and supply. Higher prices during peak times will encourage people to either ski during off-peak times or be willing to pay more for the scarce resource, thereby reducing lift lines. 2. Increase capacity: Investing in more ski lifts or expanding the existing ones to accommodate more people during peak times can help ease the congestion in lift lines and provide a better experience for everyone. 3. Introduce a reservation system: A reservation system can be implemented, allowing skiers to reserve a specific time slot for using the ski lifts. This will make sure that the scarce resource is allocated efficiently and will also reduce the waiting time for everyone. In conclusion, ski lift lines do suggest that the price mechanism is not effectively allocating the scarce resource, and adjustments can be made to improve this situation.