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Chapter 3: Q2. (page 164)

How does Uber’s surge pricing solve the problem? Assess Kalanick’s claim that the price is set to leave as few people as possible without a ride.

Short Answer

Expert verified

The surge pricing increases Uber prices; thus, the shortage is removed during bad weather. Kalanick claims that few people are possible without a ride as the price is higher, and people with no urgency will not step out.

Step by step solution

01

Explanation 

Price is used as a mechanism to remove excess demand (shortage) or supply (surplus). Whenever there is a shortage in the market, the prices increase, and demand falls, and when there is surplus, price decreases, and the demand rises.

Uber’s surge pricing solves the problem of shortage of cars during bad weather by increasing the price of Uber. People in desperate need will have inelastic demand and will take a ride despite high prices. In contrast, people who do not have such needs will prefer staying home or canceling their plans.

Thus, the shortage gets eliminated.

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Most popular questions from this chapter

When a new, faster computer chip is introduced, demand for computers using the older, slower chips decreases. Simultaneously, computer makers increase their production of computers containing the old chips in order to clear out their stocks of old chips.

  1. Draw two diagrams of the market for computers containing the old chips: one in which the equilibrium quantity falls in response to these events and one in which the equilibrium quantity rises.
  2. What happens to the equilibrium price in each diagram?

Use a supply and demand diagram to illustrate how Uber drivers can cause prices to surge by taking coordinated breaks. Why is this strategy unlikely to work in New York, a large city with an established fleet of taxis?

What accounts for the fact that before Uber's arrival, there were typically enough taxis available for everyone who wanted one on good weather days, but not enough available on bad weather days?

Explain whether each of the following events represents (i) a shift of the demand curve or (ii) a movement along the demand curve.

  1. A store owner finds that customers are willing to pay more for umbrellas on rainy days.
  2. When Circus Cruise Lines offered reduced prices for summer cruises in the Caribbean, their number of bookings increased sharply.
  3. People buy more long-stem roses the week of Valentine’s Day, even though the prices are higher than at other times during the year.
  4. A sharp rise in the price of gasoline leads many commuters to join carpools in order to reduce their gasoline purchases.

In the following three situations, the market is initially in equilibrium. Explain the changes in either supply or demand that result from each event. After each event described below, does a surplus or shortage exist at the original equilibrium price? What will happen to the equilibrium price as a result?

  1. 2015 was a very good year for California wine-grape growers, who produced a bumper crop.
  2. After a hurricane, Florida hoteliers often find that many people cancel their upcoming vacations, leaving them with empty hotel rooms.
  3. After a heavy snowfall, many people want to buy second-hand snowblowers at the local tool shop.
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