You've learned about demand and consumer surplus, and have begun to understand how the price mechanism coordinates the behavior of buyers and sellers.

Listen the Freakonomics podcast https://freakonomics.com/podcast/why-uber-is-an-economists-dream/

and read the article, "America Would Happily Pay Uber An Extra $7 Billion" before answering the following questions. (https://www.bloomberg.com/news/articles/2016-09-15/uber-s-u-s-consumer-surplus-valued-at-7-billion)

1.Draw a hypothetical market for all UberX rides in 2015, labeling all the necessary components of your graph. Shade the area representing total consumer surplus. According to the article, what is the dollar value of the area you shaded?

2.The article's Figure 5 illustrates the "rate of users purchasing Uber rides" as surge prices increase. How would we represent Uber surge pricing on a demand curve? Would this increase in price result in a shift in the demand curve or a movement along the demand curve? What would this do to consumer surplus? How do you know?

3.Draw another hypothetical market for Uber rides, labeling all the necessary components appropriately. Suppose that, as the result of a concert letting out, the demand for Uber rides increases. Illustrate these changes in your graph. What would you expect to happen to the equilibrium price and quantity of Uber rides?

4.Thinking about question 3, what would happen if the price were not able to rise? In other words, would the original price continue to be the equilibrium price in the market after the concert? If Uber didn't raise its prices, would that result in a shortage, surplus, or neither?

5.We have discussed how buyers and sellers respond to the incentives. What incentives do "surge prices" provide to consumers? Producers?