Question

Compared to prices charged by Uber, traditional taxi companies charge government-regulated prices. These government-regulated prices ________...

  1. Compared to prices charged by Uber, traditional taxi companies charge government-regulated prices. These government-regulated prices ________ in the market for shared rides.

A. decrease producer surplus.

B. decrease deadweight loss.

C. decrease consumer surplus.

D. increase consumer surplus.

I know that the answer is C, but can someone please explain why? Is it because taxi prices would be more than Uber prices?

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Answer #1

Taxi prices are higher than Uber prices ( slightly higher) ,so higher prices means the surplus that CONSUMER is earning at each quantity from Uber will be lower with taxi ,so that is these government regulated prices Decrease CONSUMER surplus in the market for shared rides.

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