Tesla manufactures electric cars in a factory in California. There are a total of 4,500 parking spaces at the factory, and Tesla has about 16,000 employees working there (although they don’t all work on the same shift). According to an article in the Wall Street Journal, the shortage of parking spaces is prompting many employees to park in unauthorized places, including up on grass medians. Some employees arrive hours before their shifts begin to secure spaces. Some employees pay other employees for spaces.
a. Use a graph to illustrate the current demand and supply for parking spaces at Tesla’s factory. Indicate on your graph the market price, the quantity of parking spaces supplied, the quantity of parking spaces demanded, and any shortage or surplus of spaces.
b. Now suppose that Tesla decides to auction off the right to park in the lot. On your graph from part (a) show what the equilibrium price and equilibrium quantity will now be.
c. Would the auction approach to allocating parking spaces in part (b) be more economically efficient than the approach that Tesla actually uses? Briefly explain.
d. Is Tesla likely to adopt the auction approach to solving its parking problems given in part (b)? Briefly explain.