Canadian Market for Passports (Micro, Ch. 6)

The Marginal Revolution blog by the authors of the book is not the only one to use a topic like “markets in everything.”  The Café Hayek blog has this post on the market for Canadian passports after the U.S. started requiring Canadian citizens have a passport to visit.  They put this post under their “Markets in Everything” topic.

Activity:

Read the post at the link above.

Questions:

1.) What happened to the market for Canadian passports when the U.S. changed its visit rules?  Show this in a graph.

2.) When the Canadian government failed to react to changes in conditions in the market for passports, what does its price effectively become?  Show the result in a graph.

3.) How did the market work to get around the government decision or indecision in this case?  Is there necessarily a value to wasted time under this situation?

Answers:

1.) Since some Canadians all of a sudden needed passports for trips to the U.S., the demand for Canadian passports increased.

   

In the above figure demand for Canadian passports has increased from D1 to D2 in response to the U.S. change in requirements for Canadian visitors to the U.S.

2.) When the Canadian government does not react to the change in market demand, their price for passports effectively becomes a price ceiling. 

 

In the graph above the Canadian government price for passports after the increase in demand is effectively a price ceiling.  Like all price ceilings this one leads to quantity supplied Qs being less than quantity demanded Qd during a particular time period as the graph shows.  This will potentially lead to waiting in line for passports.

3.) To get around this price ceiling a market for line place holders arose.   Homeless people accepted the job of holding places in line for those who needed passports.  This raises the total price of getting a passport and at least reduces the value of wasted time associated with the price ceiling.  The payments to the homeless could complete eliminate the value of wasted time if the total price of passports rises to the equilibrium price.