Application: Price Adjustment Policies
Price adjustment policies are designed to influence shoppers and essentially
prevent the market from reaching equilibrium. For example, the airline industry
routinely accepted more reservations than seats available and until the late 1970s
followed the first-come, first-served policy. In other words, passengers were
allowed to board the airplane on a first-come, first-served basis. This policy was
replaced with a policy to compensate volunteers with cash or free tickets for giving
up their seats on overbooked flights. In this assignment, you will explore the pros
and cons of both policies from an economic perspective.
Do you believe that compensating volunteers for relinquishing their seats on
overbooked flights is more efficient than a policy of first-come, first-served? Why
or why not? Argue from an economic perspective, making specific references to
this week’s readings.
The length of each response should be around 250 words.