In Rolling Stone magazine, several fans and rock stars, including Pearl Jam, wer

Question

In Rolling Stone magazine, several fans and rock stars, including Pearl Jam, were bemoaning the high price of concert tickets. One superstar argued, "It just isnt worth $75 to see me play. No one should have to pay that much to go to a concert." Assume this star sold out arenas around the country at an average ticket price of $75.

question:

Suppose that due to this star's protests, ticket prices were lowered to $50. In what sense is this price too low? Draw a diagram using supply and demand curves to support your argument.

Explanation / Answer

If the concerts were being sold out when the ticket prices were at an average of $75, then the average ticket price was lowered, the price would be too low because there is no need to lower the cost. The only reason to lower costs is to raise demand but since the concerts are being sold out, there is no need to raise demand. However, if the prices are being lowered, there will be less concerts because they will not be making as much money because as price goes down, so does supply. Unfortunately I can't drag my graph into cramster. However, the quantity supplied would have decreased.

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