To Surge or Not to Surge: the Algorithm Is the Question

Answer the following questions to check your understanding of the story.

What is surge pricing in the market for Uber rides?

Uber ____________the price of a ride when _____________.

a) increases; the number of available drivers increases

b) fixes; the number of drivers maximizes Uber's profit

c) increases; the demand for rides increases at peak travel times

d) decreases; the supply of Uber rides decreases

Wrong! - Uber’s goal is to maximize profit. As demand or supply changes would Uber stop using dynamic pricing?

Good Job! - Uber uses dynamic pricing. It increases the price of a ride when the demand for rides increases, and it lowers the price of a ride when the demand for rides decreases.

What is price gouging and when does it occur?

Price gouging occurs when ______________.

a) the seller raises the price of an essential good because the supply of the good suddenly decreased

b) the buyer of an essential good is willing to pay a higher price because the demand for it has increased

c) the buyer of a popular good offers to pay a higher price to get to the front of the line

d) the seller raises the price of a popular good because the demand for the good has increased

Wrong! - What type of good would bring price gouging—a popular good, an essential good, a good in high demand, a good in short supply?

Correct! - Price gouging occurs when a shortage of an essential good suddenly appears and sellers who have a stock of the good raise the price.

If Wendy's used surge pricing for burgers, would Wendy's be price-gouging?

a) No, because a Wendy's burger is not an essential good and its supply has not suddenly decreased.

b) Yes, because a Wendy's burger is a tasty good that most people enjoy

c) No, because the demand for Wendy's burgers hasn't changed much.

d) Yes, because Wendy's wants to control the supply of its burgers

Wrong! - What is the market force that raises the price of a good? Does price gouging occur when the price of any good rises? What makes a price rise indicate price gouging?

That's Right! - Wendy's would not be price-gouging because a burger is not an essential good and its supply has not suddenly decreased.

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