A university has a fixed number of parking spaces for studentson campus. They are currently sold at a price that clears themarket. Suppose there is a proposal that the price should belowered and a lottery held to determine who may park on campus.Each winner of the lottery would receive a ticket entitling him topurchase a parking space, and these tickets could be freely boughtand sold. The number of winners would be equal to the number ofparking spaces.
a. Graph the supply and demand for parking spaces. Show on yourgraph: (1) the marketclearing price of a parking space under thecurrent system (without the lottery), and (2) the price of a ticketunder the proposed system.
b. Show the consumersA????1 surplus (earned by parkers), theproducersA????1 surplus (earned by the university), and the total valueof the tickets to the winners of the lottery. Who gains, who loses,and who is unaffected if this plan is adopted?
c. An alternative proposal at GMU would institute the lotterywithout allowing the resale of tickets. The university wouldcarefully monitor compliance, expelling any lottery winner whoallowed his parking spot to be used by anybody else. How would thisrevision affect welfare if the enforcement mechanism weresuccessful? If it were unsuccessful?