The picture listed below is question for economic.
Summary: 0 The example discusses how attempts to limit severe trafc jams in Bejiing led to unintended consequences. 0 Ofcials in Bejiing limited the number of license plates issued each month. 0 Plates are awarded in a monthly lottery. The chance of winning is 1 in 1,907. o The price of a license plate was kept well below the market clearing price. 0 License plates are only transferable between spouses. Limited supply and a market price set below equilibrium led to unintended consequences. A black market in license plates was created. Residents bought cars in other provinces and transported them to Beijing. Some happily married couples divorced. Then one partner would pay the lottery winner to marry him or her, transfer the license plate, immediately seek a divorce, and then remarry his or her original spouse. Q uestions: 1. In the context of the license plate lottery in Beijing, what would divorce be considered? Why? Explain. 2. What causes the given indifference curves (U1, U2, and U3) to be upward-sloping? Explain. Number of license plates Number of divorces 3. What is implied by the steepness of the indifference curves? 4. Is there a way to reframe the problem so the indifference curves have the normal downward-sloping shape? Explain. 5. What general economic principle is best illustrated by this Freakonomics feature? Explain. 6. What did you learn from this article related to what we covered so far in this class? Do Traffic Jams Lead to Divorce? There are lots of reasons why couples get divorced. Traf- fic jams are not typically something we expect to be at the Did the new policy work? Definitely not as government top of that list. In Beijing, however, bad traffic is leading to officials had hoped, and for reasons any economist could divorces, but you would never guess the reason why. have predicted. It dramatically reduced the supply of new Beijing has some of the worst traffic in the world. As the license plates and kept the price of a new plate low should you happen to win the lottery. The number of consumers Chinese economy grew, so did the demand for automo- who wanted a license plate at that reduced price was far biles. The resulting traffic jams and air pollution became so greater than the number available, making the chance of severe that in 2011 government officials realized they had winning the lottery low. Knowing that, people who didn't to take action. A committee was formed to find a solution even own a car at that point entered the lottery anyway. If to traffic congestion. It came up with a plan many con- they were lucky enough to win, they could hold onto their sidered excellent: The city would limit the number of new new plates until ready to actually purchase a car. The like- license plates issued each month. Without an official license lihood of winning the lottery was so low-1 in 1,907-that plate, you could not drive a car, so this policy would bring a not many people had to worry about winning a license plate halt to the mounting number of automobiles. It was further before they were able to use it! decided that, to give all of Beijing's residents a fair chance, When government policies prevent a market from reach- the license plates would be awarded by lottery, held on the ing equilibrium, consumers find ways to get around the policy. 26th of each month. A black market in license plates soon sprung up. Another solution was for Beijing residents to buy a car in another prov- ince and then just transport it to the city (even though that action was illegal, and the police could fine you 100 to 200 RMB, or $15 to $30, each time they stopped you). There is only one legal way to transfer a license plate from one person to another in Beijing: through marriage. If, say, a wife wins the lottery, she is allowed to give that license plate to her husband. How badly did some people want license plates? Well, it turns out some happily married Do Traffic Jams Lead to Divorce? couples decided to get a divorce. One of the partners would then pay a lottery winner to marry him (or her), transfer the license plate, immediately seek a divorce, and then remarry the original spouse! This is how bad traffic-combined with government poli- VCG/Getty Images cies that do not respect the power of supply and demand- could lead someone to get divorced not just once, but twice
