Unlocking the Demand Curve: Quantifying Consumer Surplus with Uber

Consumer Behavior and the Demand Curve and Supply Curves Student’s Name: Institution: Course: Instructor: Date: Consumer Behavior and the Demand Curve and Supply Curves Demand and supply are concepts that form the foundation for economics and research in the field. Despite their significance, the data to compute demand curves is mostly unviable for most industries and economists are unable to establish the actual effect of prices on demand. Uber is an economist’s dream since it offers data on how customers respond to price changes allowing for the calculation of the demand curve and estimation of the customer surplus. In the case of Uber, the demand for services leads to price surges which in turn increases the supply of drivers at a particular time (Qian et al., 2020). Low demand for transportation leads to the app charging the regular prices and many drivers are not motivated to work at those prices. The company offers economics the opportunity to quantify the response of consumers to price changes and the impact on the supply of services by drivers. An analysis of Uber’s demand curve demonstrates the consumer surplus indicating the total amount of money that consumers are willing to pay for services above the prices in the market. Movements in the market result from diverse interacting forces that make it harder to establish the actual demand curves. Levitt was able to determine the demand curve by collecting data from Uber users in four American cities to determine the consumer surplus. In the Freakonomics hosted by Dubner, Levitt explains that he used the surge pricing algorithm used by the company and data from almost 50 million observations to create a demand curve. The organization uses the surge algorithm to set prices for consumers during high and low demand scenarios (Sabouri et al., 2020). When there demand for Uber services is higher than the supply, the company’s app sets a higher price such as 1.2 or 1.3 times the regular price. Levitt used the data indicating the demand for services and how consumers responded to surge prices to estimate that the consumer surplus for Uber X in the United States was close to $7 billion in 2015 (Qian et al., 2020). The data demonstrated how often consumers accepted or declined to take Uber services at certain surge price levels to demonstrate how much they were willing to pay for s