Chapter 4, Problem 12P

To determine

Uber has long been criticized for its use of surge pricing, setting prices based on current supply and demand factors, which, at times, results in a sudden and drastic increase in prices. Ina wall street Journal article, the CEO of Uber was asked if we are seeing the end of surge pricing. His response “at the end of the day, Friday night is three or five times bigger than a Sunday night in any city around the world. And if you ‘ve got enough supply on the system to that we were perfectly supplied on a Friday night for a much demand as a city could ever throw at us, then the rest of the week you have drivers not making a living”.

1. Diagrammatically, the demand and supply conditions in Miami on Sunday and Friday nights.
2. The consumer and producer surplus on a Friday night without surge pricing.
3. The effect of surge pricing on consumer and producer surplus.

Concept Introduction:

Consumer Surplus:

The difference between the price that the consumers are willing to pay for a unit of product and the price they actually pay.

Producer Surplus:

The difference between the price a seller offers and the minimum price at which he will offer to sell a unit of a product.