Analyzing Demand and Supply: Uber, Land, and Market Equilibrium

This assignment analyzes demand and supply principles using real-world examples of Uber and land markets. It explores how severe weather conditions impact the demand for Uber rides and how surge pricing affects market equilibrium. The analysis includes graphical representations of demand and supply curves, demonstrating the effects of price changes and supply limitations. The assignment also delves into the inelastic supply of land, particularly in urban settings, and examines how population growth influences demand. Additionally, it discusses the concept of long-run equilibrium and the role of government subsidies in supporting businesses, such as hawkers, facing high fixed costs. The student's work provides a comprehensive understanding of economic concepts and their practical applications.

Running head: DEMAND AND SUPPLY 1
Demand and Supply
Name
Institution

DEMAND AND SUPPLY 2
Demand and Supply
Q1.
1.The demand for Uber rides increases in the presence of tough weather conditions such as
severe storms. According to Hörcher and Graham (2018), the level of demand for a commodity
is determined by factors such as ease of availability and the number of consumers in need of the
merchandise/service. On the other hand, Knees (2016) reveals that demand increases with
decrease in supply. In instances of severe storms, the supply of Uber vehicles is limited. Based
on the conventional laws of demand and supply; the demand of Uber services increases with
decrease in supply due to the adverse weather conditions.
Comparatively, the original market equilibrium would be distorted if Uber charged
uniform rates. According to Hörcher and Graham (2018), the demand for transport is greatly
affected by the extent of availability. The fact that the supply of Uber rides is limited during and
after severe storms reveals how the equilibrium will be distorted if normal charges are
maintained (figure 1).
Price
Increase in demand
Supply
Demand
Quantity (Uber rides)

DEMAND AND SUPPLY 3
2. The surge pricing model adopted by Uber is highly necessary as it gives the organization’s
drivers the morale of operating in difficult conditions. The price surging technique plays a
significant role in increasing the supply of vehicles in the event of a snow storm since the
demand for transport services is very high.
Price
An increase in
equilibrium price
Snow increases the demand for Uber rides
Uber rides
3. From a generalized perspective, consumers are better off with Uber’s surge pricing model.
The model caters for the consumers’ by allowing them to access rides at lower rates when the
supply is high and at an increased charge with decrease in supply.
Price
Supply
Demand
Quantity

DEMAND AND SUPPLY 4
Q 2.
1. There is need to appreciate the fact that the supply of land is perfectly inelastic. According to
Knees (2016), the surface area of land remains constant. Therefore, an increase in the population
of a place leads to an increase in the demand for this scarce resource. According to Chow and
Niu (2015), the demand for this natural commodity in urban areas continues to increase.
According to Hörcher and Graham (2018), the exponential increase in demand is attributed to the
fact that land is one of the most significant factors of production. The fact that the supply of land
in urban settings cannot be increased explains its demand/ supply curves.
2. The supply of land in urban settings has continued to diminish over the years. On the other
hand, the demand for this essential factor of production has seen an exponential increase.
Initially, the supply of land for the entire economy was considered to be perfectly inelastic
(Hegetschweiler et al., 2017). However, the fact that there is production cost attributed to the
land in urban areas associated with construction and maintenance shifts its curve to somewhat
elastic.
S
Price
S
Quantity of land

DEMAND AND SUPPLY 5
3. Unlike other taxes that lead to the reduction of the supply of the targeted commodity, taxation
of land as a key factor of production does not lead to a minimization in the levels of availability
of this scarce commodity. Hegetschweiler et al. (2017) explain that in real settings, imposition of
taxes leads to a reduction in the extents of demand for a commodity since consumers are
propelled to adopt cheaper alternatives or forego the goods/ services. Comparatively, land boasts
of its inelastic supply. On the other hand, Oliner (2016) reveals that in urban settings, land
parcels are finite; an aspect that hinders the processes of increasing its supply in instances of
shortage.
In urban settings, the demand for land is ever increasing. Oliner (2016) attributes this to
the fact that urban populations are on a steady increase. Further, urban areas are considered to be
strategically placed to foster economic and industrial productivity. Therefore, imposition of taxes
does not lead to a reduction in demand for this scarce resource. Hegetschweiler et al. (2017)
reveal that while taxes impact the buying power of the targeted consumers in an adverse way, the
supply of land is constant. On the other hand, Hörcher and Graham (2018) demystify that such
levies may also limit the extents to which prospective buyers lease or buy land.
Q 3.
1. Poghosyan (2014) defines long run equilibrium as a timeframe that is sufficiently
adequate to allow businesses to instill the desired changes in their aspects of production.
Therefore, the long run equilibrium plays a significant role in allowing firms to undertake
total adjustments. The figure below shows the long run equilibrium without government
subsidies

DEMAND AND SUPPLY 6
Cost
P
2. The hawkers in the case study are faced with the increasing fixed costs of entry as the greatest
challenge to effective establishment of their premises. Currently, hawkers in this market are
forced to incur exorbitant fixed costs in order to carry out their operations at constant marginal
costs. According to Comin, Lashkari and Mestieri (2015), the hawkers’ decisions of how much
they need to produce are highly dependent on the prevailing levels of demand. As revealed in the
figure below, there are instances where the prevailing levels of demand for the hawkers’
merchandises is such that the targeted buyers do not show the will of paying a price that is high
enough to ensure that the venture recovers its initial investment. As a consequence,
Hegetschweiler et al. (2017) explain that government interventions in the form of subsidies are
required to ensure that the hawkers remain productive. Therefore, government subsidies play a
LAC
AR = MR
S
RevenueN
LMC

DEMAND AND SUPPLY 7
significant role in increasing the levels of production of firms in a market by minimizing the
fixed and variable costs of these ventures.
The subsidies availed by the government of Singapore to the firms in this market will
play a significant role in decreasing the prices charged by hawkers in the short run. Comin,
Lashkari and Mestieri (2015) explain that in the absence of interventions from the government,
the prevailing levels of demand shift in such a way that consumers lack the will of paying higher
prices for the hawkers to recover their initial investments. Hegetschweiler et al. (2017) reveal
that while the hawkers only care for the profits they get from their engagements, they are faced
with the obligation of ensuring that consumer welfare is catered for. Therefore, the government
only introduces subsidies for initial investments such as rent and lease fees as a way of
encouraging the hawkers to continue the supply of the required goods as shown in the figure
below.
d
a
P*
O
Q*
b
c
Marginal cost
Average cost
Marginal Revenue

DEMAND AND SUPPLY 8
In the figure above, the profitability of hawkers in the Singaporean market is hindered with the
absence of government subsidies. Therefore, the price charged (P*) is considered to be lower
than the average cost (b). With the consumer welfare at zero, the hawkers’ production is limited.
Provision of government subsidies equal to P*abc steers the hawkers to increase their output to
OQ*.

DEMAND AND SUPPLY 9
References
Chow, G. C., & Niu, L. (2015). Housing Prices in Urban C hina as Determined by Demand and
Supply. Pacific Economic Review, 20(1), 1-16.
Comin, D. A., Lashkari, D., & Mestieri, M. (2015). Structural change with long-run income and
price effects (No. w21595). National Bureau of Economic Research.
Hegetschweiler, K. T., de Vries, S., Arnberger, A., Bell, S., Brennan, M., Siter, N., ... &
Hunziker, M. (2017). Linking demand and supply factors in identifying cultural
ecosystem services of urban green infrastructures: A review of European studies. Urban
Forestry & Urban Greening, 21, 48-59.
Hörcher, D., & Graham, D. J. (2018). Demand imbalances and multi-period public transport
supply. Transportation Research Part B: Methodological, 108, 106-126.
Kneese, A. V. (2016). Transportation and urban land. Routledge.
Poghosyan, T. (2014). Long-run and short-run determinants of sovereign bond yields in
advanced economies. Economic Systems, 38(1), 100-114.