Author Question: How does a government budget surplus or deficit influence the loanable funds market? What will be ... (Read 106 times)

eruditmonkey@yahoo.com · **on:** Jun 29, 2018

How does a government budget surplus or deficit influence the loanable funds market?

What will be an ideal response?

Question 2

Priceline is a website that sells flights and hotel bookings based on the price that a consumer states that he or she is willing to pay.

So, a consumer who wants to book a flight or a hotel room needs to tell Priceline the price that they are willing to pay and the seller lets Priceline know whether he is willing to accept that price. a. How do sellers make profits by using this form of pricing? b. In 1999, Priceline attempted to replicate this pricing strategy with groceries and gasoline. However, using this pricing strategy with these two goods soon proved unprofitable. What could explain this?

mmj22343 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

A government budget surplus adds to the supply of loanable funds. A government budget deficit adds to the demand for loanable funds.

Answer to Question 2

a. Sellers who are associated with Priceline try to capture consumer surplus by setting a price that is close or equal to the consumer's willingness to pay. The consumer states his or her willingness to pay, which may be higher than the price at which the seller would have sold the hotel room or flight. This way, consumers who are willing to pay more will end up paying a higher price. If the price that is stated is lower than marginal cost, the seller can reject the offer.
b. The costs associated with selling a unit of groceries or gasoline are different from the costs of selling an additional airplane seat or hotel room. The marginal cost of selling an additional seat on a plane or a hotel room is relatively small. So, the seller would benefit from almost any price that a consumer offers to pay if it means that that a seat on a plane or a room in a hotel is filled. However, the costs associated with selling groceries and gasoline are much higher. Since the seller would only accept prices that cover these higher costs, he may reject lower prices. Also, there are likely to be many consumers who make last-minute plans and are willing to pay more for hotels or flights. This may not be the case with groceries and gasoline.
See http://www.slate.com/articles/news_and_politics/hey_wait_a_minute/2000/05/ the_economics_of_pr iceline.html and http://www.strategy-business.com/article/23003?gko=1ccc3