Managerial Economics Report: Uber's Pricing & Land Market Dynamics

This report delves into key concepts of managerial economics, focusing on the dynamics of supply, demand, and pricing strategies. It examines Uber's surge pricing model, highlighting how it balances supply and demand during peak times, alongside an analysis of consumer welfare under different pricing scenarios. Furthermore, the report explores the unique characteristics of land supply and demand, particularly in urban areas, and evaluates the effectiveness of land tax as a policy measure. It also discusses how land use changes affect demand, and how inelastic land supply affects land value, providing a comprehensive overview of these interconnected economic principles. Desklib is your go-to platform for more solved assignments and study resources.

Running head: MANAGERIAL ECONOMICS
Managerial Economics
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Table of Contents
Part A...............................................................................................................................................2
Question 1....................................................................................................................................2
Question 2....................................................................................................................................5
References list..................................................................................................................................7

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Part A
Question 1
Question a
Following the occurrence of severe storms, demand for Uber service increase as people
willing to get out from storm hit areas. Supply of Uber service however fails to match the
increased demand (Moulin, 2014) This leads to a shortage in the market. This is explained with
the aid of the following figure.
Figure 1: Impact storm in Uber service market
Demand and supply function for Uber service is given by D0D0 and S0S0 respectively.
Difficulty in accessing subways, unavailability of transportation and other factors cause a hike in
Uber demand after storms. Due to the hike in demand, demand curve alters with a higher demand
curve of DD. If Uber continues to chare same price, there would be a shortage in the market as
shown in the figure.

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Question b
The strategy of dynamic or surge pricing helps to maintain a demand-supply balance for
Uber services. During snow storm, higher price provides driver greater incentive to pick up
people from different region. Additionally, as price increase some demand of riding service
reduces. High fares allocated the limited available riding service to those who really need and
willing to pay a higher fare compared to others (Cachon, Daniels & Lobel, 2017)
Figure 2: Impact of surge pricing of Uber
After storm, the demand curve moves from D0D0 to D1D1. The new market clearing price
is higher compared to earlier equilibrium price. The new higher price is P1. Higher price helps to
increase availability of drivers and hence, absorb the shortage. This takes the market gradually
toward equilibrium.
Question 3

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Welfare to the consumers can be assed from resulted consumer surplus under two
scenarios with and without price surge. If price remained at the same level, then those receive the
service at the earlier price enjoy a higher surplus as compared to those who can only get the
service at an increased price (Mankiw, 2015) Following figure illustrate consumer surplus under
the two circumstances
Figure 4: Consumer welfare with and without price surge
Without surge price
Suppose, the initial price of Uber service is P*. Surplus received by the riders then given
as EP*A.
With surge price
Now consider a case where consumers face a higher price at P1. At this, estimated
consumer surplus is given by the area E1P1A.
Clearly, E1P1A < EP*A.

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Question 2
Question a
As per the article, the unique fact about demand and supply of land is that land scarcity is
not distributed evenly across all the region. Some highly demanding areas such as in cities the
problem of scarcity is much higher. The supply curve of land is perfectly elastic that parallel to
price axis. The demand curve is as usual sloping downward.
Question b
Overtime, a higher pressure on land has been realized. Land is not only used as a primary
input in agriculture but it is also necessary for spread of urbanization and industrialization.
Therefore, demand of land increases with passes of time moving the land demand curve to the
rightward direction (Alexander et al., 2015). Supply of land being inelastic in nature cannot be
changed. Given fixed land supply, the increased demand increases the value of land.

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Figure 4: Dynamics of land supply and demand
Question c
The inelastic demand of land makes land tax an efficient policy measure. The graphical
representation of a land tax is given in the following figure.
Figure 5: Evaluation of land tax
Given the demand and supply, suppose a tax of T is imposed on land. The imposed tax is
expected to earn a revenue of OTPL. As the supply of land cannot be altered, the pre-tax amount
of land L can still be available. This keeps land users unaffected following tax (Stiglitz &
Rosengard, 2015). The land owners however get a relatively smaller return of RT. The higher
rental value of land induces buyers to reduce their demand to D1D1. Lower demand helps to
reduce both the value of land and increasing pressure on it.

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References list
Alexander, P., Rounsevell, M. D., Dislich, C., Dodson, J. R., Engström, K., & Moran, D. (2015).
Drivers for global agricultural land use change: the nexus of diet, population, yield and
bioenergy. Global Environmental Change, 35, 138-147.
http://dx.doi.org/10.1016/i.gloenvcha.2015.08.011
Cachon, G. P., Daniels, K. M., & Lobel, R. (2017). The Role of Surge Pricing on a Service
Platform with Self-Scheduling Capacity. Manufacturing & Service Operations
Management, 19 (3), 368-384. http://dx.doi.org/10.1287/msom.2017.0618
Mankiw, N. G. (2015). Principles of Microeconomics, Cengage Learning. Stamford, CT, 213.
Moulin, H. (2014). Cooperative microeconomics: a game-theoretic introduction (Vol. 313).
Princeton University Press.
Stiglitz, J. E., & Rosengard, J. K. (2015). Economics of the public sector: Fourth international
student edition. WW Norton & Company.

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