A Study Regarding Barro and Romers Analysis of the Entry Fee Pricing Used by Amusement Parks

A Study Regarding Barro and Romer's Analysis of the Entry Fee Pricing Used by Amusement Parks Introduction Amusement parks and ski resorts typically charge a one-time entry fee to use as many rides or ski-lifts as people can in a day. They do not charge a fee for every individual ride that a person takes. Barro and Romer analyze why amusement parks and ski resorts use this type of entry fee pricing. In this paper, Barro and Romer discuss how during peak seasons, amusement parks (ski-lift services, etc.) are very crowded and have long lines. If an amusement park is crowded, and has â€Å"chronic queuing,† economists would suggest that the park would be better off if they raised prices. Traditionally raising prices when demand is high will bring the park to an efficient equilibrium where supply is equal to demand. Economist would also suggest that if the price were too low, there would be other inefficiencies that would occur in the park. Parks that have long lines continue to thrive, even though economists say they should not be. The authors argue that amusement parks and ski-lift services that set prices so that lines are longer during peak times are not being inefficient. They are maximizing profits in equilibrium by setting prices for all-day use subject to a downward-sloping demand curve. As demand increases, it may not even cause the park to increase prices, as prices are sticky. The authors analyze different conditions such as park congestion, transportation ability, park quality, and how those factors affect pricing. Model Summary There are two types of agents in this economy: Individuals and amusement park (ski-lift service, etc.) firms. Each individual’s objective is to maximize their utility. They want to get the most out of their experience at the amusement park. If a park is charging for each individual ride, the individual tries to maximize utility: Ui=Ui(qi,zi), where qi is the number of rides, and zi is goods other than rides. The individual chooses qi to maximize the utility subject to Yi=Pqi+zi+ci, where Yi is the real income, ci is the entry fee, and P is the price per ride. The individual is maximizing their utility subject to a budget constraint. There is no entry fee, but there is a price per ride with ride tickets. For an individual that is being charged an entry fee with no extra price per ride, they are also attempting to maximize utility subject to their budget constraint. Price per ride is equal to zero, but there is an entry fee.Individuals are also constrained by preferences, transportation costs, and congestion aversion. The individual can also choose other ski areas or amusement parks. The firm’s objective is to maximize profits. They can choose what price to charge, and if they want to charge an entry fee or charge for individual rides. They are constrainedby a production function (capacity for the ski area or amusement park). Equilibrium This model assumes that ski lifts and amusement parks are competitive. Under a competitive equilibrium each agent will maximize their objective. The park will maximize their profits and the individual will maximize their utility. All markets will need to clear. For ride ticket pricing, â€Å"equilibrium requires that the total capacity of rides, Jx, equal the total number demanded, qN – that is, Jx = D(P) Ãâ€" N(P,s).† The price is determined by a given value of Jx. Total capacity increases, price will fall. If demand increases, prices will rise. For entry fee equilibrium there are several equations that need to be satisfied. In this model, each individual’s preferences are the same. This model means that parks and ski resorts set their prices to maximize profits, given the demand of the individuals. Individuals are attempting to maximize their utility, given the prices the ski resorts and amusement parks set. Results The equilibrium conditions for single-ride tickets and all day entry fees initially provide the same result. Each firm will be able to maximize their profit and each individual will be able to maximize their utility. Barro and Romer account for a few more factors that could impact the results. The factors that were not included initially were costs incurred to avoid theft of rides, the heterogeneity of rides (not every ride will be the same depending on time of day, breakdown of equipment, congestion, etc.), and time spent waiting in line, which will have a positive opportunity cost. If parks charged for each ride, there would also be higher costs associated with collecting money. The park would have to have a cashier (or another way of collecting money/tickets) at every ride. This would increase the cost for the park. The model predicts that charging a one-time entry fee will be more efficient for both the individual and for the firm. Real World Context The authors suggest that that this model can be used for fishing. If there is a price per fish for the fisherman, it will be less effective than a fishing license where a fisherman can catch as many fish as he wants in a given period of time. This model can also be used when thinking of a gym. When you go to they gym you pay for a specific amount of time you are able to use the gym. Most people pay per month, and they have unlimited access after the initial payment. The gym does not charge for every machine that you use or every weight that you lift. This would fit with the model because it is more efficient to charge a one-time fee for a certain amount of time. When applying the gym to this model, each individual’s objective is still to maximize their utility subject to a budget constraint. The gym is trying to maximize their profits subject to a production constraint (gym capacity). Conclusion This paper helped me understand why certain types of industries charge a one-time fee instead of a per-use charge. The main reason for using this type of pricing seems to be because it costs less to both the firm (costs less money), and to the consumer (costs less time). This will increase the firm’s profits and the consumer’s utility. This model will be useful for many industries to determine the most efficient form of pricing.

International source of finance for india as developing country Dissertation

International source of finance for india as developing country - Dissertation Example The background of this study is to access the need of international sources of finance by India as a developing country. The major cause of underdevelopment in the developing country like India is the shortage of capital. If India depends on its own funds for funding economic development either of the two possibilities comes out. Partial development programs shall be accepted and a low rate of growth will be attained or else people will be required to forfeit to a limit beyond tolerance, which is feasible in an authoritarian state but not in a developing country like India which is a democratic state. So, there is need of international sources of financing in India which is very important for economic development (Hukku, 1989, p.12). Availing of foreign support is not a subject of shame for any country for those who are providing support today had them accepted the same earlier. Almost every developed state has had the support of foreign finance in order to enhance its own inadequate savings during the initial stage of its development. In the initial stages of development significant foreign assistance may be required but slowly foreign support as percentage of development expenses goes on retreating, since the developing nations must gain knowledge of becoming self reliant (Hukku, 1989, pp.12-13). As a developing country, India depends greatly on international sources of financing. The rates of its personal saving are good, as a minimum among the one-third of the population of the country that isn’t living in scarcity. The rapid growth of the economy of India has created much wealth for some people and that wealth is finding the places to grow. Some of it’s discovered its means out of the country, supporting the current wave of overseas acquirements. Rest of them stays home, mostly in Indian banks, accessible for collateralized use. There are various financial institutions and bodies that can fund direct investments in India and they are as follo ws: Overseas Private Investment Corporations, United States Trade and Development Agency, United States Agency for International Development, United Nations, Asian Development Bank, multinational financial aid organizations, bilateral financial aid organizations, local stock markets, and branch offices of foreign banks (Makar, 2010, p.205). This paper will give emphasis on the role of Foreign Direct Investment (FDI) and the World Bank in India. Aims and Objectives Aims: The aim of this paper is to explore why there is a need of international sources of finance for India as a developing country and how India use that sources for its own development. Based on background of study and

Relationship Between Argetina and the International Monetary Fund Essay

Relationship Between Argetina and the International Monetary Fund (IMF) - Essay Example The higher a countrys foreign debt level, the greater are the chances of default. According to World Bank, the Latin American Countries (LAC) would need US $ 60 million annually during 1991-2000 period. This translates into higher borrowing, higher debts and debt servicing. Budget cuts were immediately felt at the international financial institutions like the Asian Development Bank (ADB), International Monetary Fund (IMF), which decreased access to officially supported credits. Global interest rates rose, which further increased foreign debts. Mexico, Brazil and Argentina could not sustain the economic growth and lurched from one financial crisis to another (Elstrodt, Lenero, and Urdapilleta). Debt has been the largest source of capital flows in the developing countries but despite that, economic development has not been successful. The causes and consequences of such debts have been the subject of debate over the years. This paper will examine the severity of Argentinas debt and the relationship between Argentina and the IMF. During the Great Depression of the 1930s, UK and France too had defaulted on the debt repayments but the problems in debt repayments in Latin American can be dated back to 1914 when Mexico suspended its payments (Dodd). Owing to a series of corrupt regimes, Argentina has experienced severe economic declines. In 1956, a group of wealthy nations met in Paris to find a solution to the looming debt problems of Argentina. In the 1970s, large amount of lending to Latin America was in the form of syndicate banks loans. Brady Bonds helped in the debt restructuring process and the Brady plan proposed exchanging the loans for bonds that would allow the debt to be traded in financial markets where it would be priced at market value. Macroeconomic management is essential if the country is to attain sustained growth. Argentina, besides pegging the peso to the US dollar at parity in