Some of the examples and questions here are developed from: Mckenzie, R. D. (2008). Why popcorn costs so much at the movies. Springer, New York. Image 1: Sod1) 2) Imagine a hardware shop sells fresh rolledgrass turf (sometimes referred to as 'sod' see Image 1). Every morning, there's a queue for the turf and the shop runs out of turf within half an hour of opening. Every morning, several queuing shoppers leave the shop without being able to buy any turf. The persistent existence of such queues seems to contradict the basic theory of how prices are determined in a competitive market. What does the theory say should happen in the turf market? Depict with the help of a simple diagram. [3 marks] Despite the theory of how prices are determined in a competitive market, queues exist in a variety of settings. One reason for this could be demand uncertainty it is difcult for sellers to predict how much demand there is for their products. a. Can you give an example of a good where demand is highly uncertain (or highly volatile)? [2 marks] b. Why do you think demand uncertainty can explain why queues exist? [2 marks] c. One argument for why queues exist for turf is that they are highly perishable; i.e. the product goes to waste if it is not sold on the day. Why do you think a perishable good is more likely to result in queues? [2 marks] 3) In the aftermath of Hurricane Andrew (which occurred in 1992) \". .. big companies performed far differently than the pricegougers selling ice, water and lumber from the back of pickup trucks at wildly inated prices. . .But unlike the carpetbagging vendors, who drove away at sunset, the big companies have a long-term stake in the South Florida market. For them the good will of local customers. . .is a valuable asset.\" (Haddock and McChesney, 1994).1 a. According to the theory of price determination in competitive markets, what should happen to prices of essentials such as ice, water and lumber, in the aftermath of a natural disaster such as a Hurricane? Depict with the help of a simple diagram. [2 marks] b. The quoted statement from Haddock and McChesney (1994) suggest that in the aftermath of Hurricane Andrew, big companies did not increase their prices (thus leading to queues and shortages), while small 'carpetbagging' sellers who arose to respond to the temporary shortages were willing to 'pricegouge' with 'wildly inated prices'. What do you think explains the differences in the pricing reactions of these two groups of sellers? Which pricing behaviour do you think is better? Why? [3 marks]