Question

Like many students at college, Arturo struggles to find a parking space on campus. Every year he has to buy a parking permit, which allows him to park on campus. Unfortunately, buying a permit does not guarantee that he can find a parking spot. So he often gets to campus well before class starts, hoping to find a good parking spot, but ends up driving around until someone leaves. One day after his economics class, Arturo comes up with a potential solution to the problem. He suggests the following: Suppose the demand for parking is given by the following equation:Qo - 20,000 - 400P. At Arturo's school, there are 16,000 parking spaces for students. For the questions below, give all answers to the nearest whole number.
a. At most universities, students do not pay to park each day. They pay for a permit, which only allows them to park on campus. Therefore, the price students face each day is $ Unfortunately, this creates a of parking spaces.
b. The university, in order to prevent the shortage issue is changing from selling parking permits to charging a daily parking fee. Suppose parking spaces were allocated at Arturo's school using the market mechanism. In this case, students would have to pay $ each day to park
c. As his school gets larger, the demand for parking increases to Qo - 24,000 - 400P. If Arturo's university wanted to keep the market price (the price of daily parking) the same, it would have to provide more parking spaces

Answer 1

Answer:

a. 4,000 parking spaces

b. $10 per day

c. 4,000

Explanation:

a.  If students pay for a permit, and not a daily fee:

the demand equation is Qd = 10,000 and Qs = 16,000

So, the shortage is

= 20,000 - 16,000

= 4,000 parking spaces

b. If the university charges a daily fee so the equation will be

Qd = Qs

20,000 - 400P = 16,000

4,000 = 400P

P = $10 per day

c. An increase in demand will be

Qd = 24,000 - 400P

To keep the price at $10

Qs = 24,000 - 400 × (10)

= 20,000

now,

More spaces required is

= 20,000 - 16,000

= 4,000