A university has a fixed number of parking spaces for students on campus. They are currently sold at a price that clears the market. Suppose there is a proposal that the price should be lowered and a lottery held to determine who may park on campus. Each winner of the lottery would receive a ticket entitling him to purchase a parking space, and these tickets could be freely bought and sold. The number of winners would be equal to the number of parking spaces.
a. Graph the supply and demand for parking spaces. Show on your graph: (1) the marketclearing price of a parking space under the current system (without the lottery), and (2) the price of a ticket under the proposed system.
b. Show the consumersA????1 surplus (earned by parkers), the producersA????1 surplus (earned by the university), and the total value of 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 lottery without allowing the resale of tickets. The university would carefully monitor compliance, expelling any lottery winner who allowed his parking spot to be used by anybody else. How would this revision affect welfare if the enforcement mechanism were successful? If it were unsuccessful?
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