Supply and Demand for Concert Tickets

1.  Introduce the article by asking students if they have ever paid more for a concert ticket or another product than the “face value” or normal box-office price.   Ask why they were willing to pay a price higher than the original asking price.  Note the various responses and examples.

Generalize about the factors that influence demand and supply for products like concert tickets. 

Factors Influencing Demand                                    Factors Influencing Supply

Tastes and preferences (utility)                               Production input costs

Income level                                                               Expectation of profit

Prices of Substitute Products                                  Producers’ opportunity cost

Prices of complementary products             Technology improvements

Consumers’ future expectations                              Producers’ future expectations

You can use Visual 1: Factors Influencing Supply and Demand, to illustrate the general factors influencing demand and supply.

2.  Distribute copies of the Student Page 1: Reading, “Hannah Montana tickets for $250? It's an outrage to fans and parents — but not to economists.”  Students should read the article, noting the factors mentioned that they think influence supply and demand. 

After the reading, ask students to give examples from the article that illustrate the factors influencing demand.

Possible answers: tastes and preferences (popularity of Hannah Montana), income (many people’s willingness to pay high prices), substitutes (other locations), expectations (increasing prices).

Ask students to give examples from the article that illustrate the factors influencing supply. Note: These may be a little more difficult to identify.

Possible answers: Number of sellers, costs of production (most likely reflected by the initial box-office prices),profit and future expectations (speculation by ticket resellers), opportunity cost (reluctance to charge higher initial box-office prices, or the limited number of concerts Hannah Montana can do vs. other time opportunities or obligations), technology (used by resellers to purchase more tickets).

3.  Explain: In this situation, the quantity demanded at the box-office price was apparently greater than the quantity supplied.  Ticket re-sellers purchased tickets and offered them for sale at higher prices through a secondary market.  Many consumers offered to purchase the tickets at higher prices.  As tickets were resold, the market found an equilibrium price, when prices rose to a price where the quantity supplied equaled the quantity demanded.

Equilibrium is the point at which the supply and demand curves cross; at this point, the quantity demanded and the quantity supplied are equal. The price indicated at that point is the price we see in the market, and the quantity illustrates the amount produced.

The demand for Hannah Montana tickets was apparently high, relative to the box-office price. If demand increases (shifts to the right), the equilibrium point changes, as prices rise.  Normally, a higher price is an incentive for producers to increase output, but, in this case, the quantity supplied could not be increased.

Since the supply of tickets was fixed (in the short term), the market experienced a shortage, resulting in higher ticket prices. 

4.  Ask:  What is the primary issue illustrated in the article? 

Possible Answers: Answers may very, but the primary question raised in the article is whether or not the government (at some level) should regulate the market so that more people have access to concert tickets or access to the tickets at lower prices (the original box-office price).

5.  Ask: What are the potential options for markets, consumers, producers or public policy offered by the author?  Brainstorm and create a list the student responses.  List all responses, no matter how strange or impractical.

Possible Answers:

•  Free market – no restrictions on sales, purchases  or re-selling.

•  The concert promoters can set higher initial box-office prices.

•  Anti-re-selling (scalping) laws (strictly enforced): maximum prices or purchase limits

•  Box-office sales only (rationing by queues).

•  Auction tickets to the highest bidders.

•  Ticket purchasers must pass a test (tickets go to those with the greatest utility).

•  Ban the use of technologies that benefit re-sellers.

6.  Ask: What are the criteria we can use to determine the best policy option?  Brainstorm and create a list the student responses.  List all responses.

Possible Answers:

•   Is it “fair” to consumers?  Does everyone have the opportunity to get tickets?

•   Is it “fair” to the producers?

•  Do the producers maximize profits? (Remember, the re-sellers are also producers.)

•  Do those who want tickets (greatest utility) and are willing to pay more, get them?

•  Are negative or positive externalities created as a result of the system?

•  Does the system result in the higher or lower prices? Does it matter?

•  Does the system effectively allocate the tickets? 

You can use Visual 2: Economic Goals to illustrate and focus the discussion on some of the general goals of economic systems and public policies.

7.  Assign the students to groups of three or four for this part of the activity.

Ask each group to write a response to following prompt.  Allow time for the groups to write a proposal and rationale. 

In the situation identified in the article about Hannah Montana concert tickets, what is one possible government policy option?  How might that policy impact consumers and producers.  Provide a rationale for your proposal with analysis based on at least three of the criteria identified by the class. 

8.  Ask the groups to briefly present their proposals, impacts and rationales.   After all proposals have been presented, students should ask questions about the other groups’ proposals.  The point is not to criticize, but to ask questions that clarify the proposals, impacts and rationales.

After the presentations and questions, students can vote on the “best” policy.  If possible, narrow the options to two possible options prior to the vote.  This can be by consensus about the two most reasonable or most popular options.