Scalping and market clearing

Market clearing according to the classical economist involves the process of adjusting prices in order to achieve equilibrium price and quantity, this is a situation whereby the quantity demanded will equal the quantity demanded, and this point will give us the equilibrium price and also equilibrium quantity. When the market is not at equilibrium there is need to adjust the price so as to achieve the equilibrium, this is what is referred to as market clearing. [1]

However the market is not always at equilibrium and market forces such as the demand and supply adjusts its self automatically, this is given by the law of demand and supply where when the quantity demanded is high then the level of prices rises and therefore the demand declines, when supply is high then prices will go down discouraging suppliers and therefore adjusting quantity supplied.[2]

We Will Write a Custom Essay Specifically
For You For Only $13.90/page!


order now

Scalping involves the process of recommending high prices on a security or in our case tickets shortly after having acquired the tickets at a lower price and when the prices go up the individual will sell the ticket at a high price and therefore make a profit.

Sporting event tickets:

In our case all tickets for a stadium have been sold at a price lower than the normal market price, in this case there is need for market clearing in order to shift the market is not at  equilibrium, the following diagram shows the case where all the tickets have been sold at a lower price than the equilibrium market price:

 

From the above diagram the equilibrium price is Pe and the equilibrium Quantity is Qe, however the tickets were sold at a lower price than the equilibrium price, in this case the price was P1 and the quantity demanded was Q1, excess demand was Q1 minus Qe, the price was lower by Pe minus P1, the equilibrium point determines the equilibrium price and equilibrium quantity, the equilibrium point is the point where the supply curve will intersect with the demand curve and in our case it is Qe and Pe.

Scalping:

In the case where there is scalping, ticket holders will gain in the process, due to the high demand the price of tickets will rise, people will tend to buy the tickets at high prices, the ticket holders will therefore gain in the process whereby they will sell their tickets at higher prices than the price they originally bought them, the diagram below shows the process of scalping and the total gain.[3]

In the above diagram Pe represents the equilibrium price and also Qe represent the equilibrium quantity, Pa in diagram 2 represents the price after Scalping, this price after scalping is quite high than the original price the holder of the tickets had acquired them, this price therefore will lead to profits to the ticket holder.

The values of profit the ticket holder will get is the difference in buying price and selling price and multiply that with the number of tickets bought, as a resulting of scalping the holders o the ticket ill get a profit and those who buy later will loose by buying at a very high price.

Scalping is the process of making value out of creating demand for goods and services, the value of tickets is made to rise by the increased demand of these tickets, the profit will be to the ticket holders and the loss will be to those who buy the tickets after the prices have gone up.[4]

The process of scalping is termed as illegal by many governments because it involves enticing people to buy by creating a situation that people will prefer certain goods and services as to gain value in the near future, as people demand the goods and services the prices goes up as the law of demand depict that as the demand of a commodity increases the prices will rise because the demand will exceed quantity supplied. The market however has its own automatic adjustment mechanism whereby as the demand raises the price rises and when the price rises demand goes down.[5]

Conclusion:

Scalping is a process of recommending high future prices on a security or in our case tickets shortly after having acquired the tickets at a lower price and when the prices go up the individual will sell the ticket at a high price and therefore make a profit. Market clearing is the process of adjusting prices in order to achieve equilibrium price and quantity, this is a situation whereby the quantity demanded will equal the quantity demanded, and this point will give us the equilibrium price and also equilibrium quantity. When the market is not at equilibrium there is need to adjust the price so as to achieve the equilibrium, this is what is referred to as market clearing.

In the case where tickets were all sold at a low price than the equilibrium price level, it is clear that the price will eventually rise as demand for this tickets rises, when this happens the ticket holders have the opportunity to make profit from the difference in the price levels which give them this opportunities, therefore the ticket holders will gain while those who buy the tickets after the rise in price will loose.

x

Hi!
I'm Mack!

Would you like to get a custom essay? How about receiving a customized one?

Check it out