Question

Comparative Statics:Consider the market for taxi service in San Francisco. Explain how the following events will affect the equilibrium (?∗,?∗)in the taxi market. Consider each case separately. Use supply and demand curves to defend your answergraphically.

a)Bus fares increase after a strike by bus drivers.

b)Taxi drivers must pass a competency test, and one-third fail.

c)The price of a taxi permit increases and consumer income increases. Assume that taxi service is a normal good. Show each event on separate graphs. After you perform comparative statics for each graph, determine the overall net effect on P* and Q*. Note, ifyou get conflicting results, e.g. Price increases and decreases, then the net result is indeterminate.

d)Half the downtown parking lots are converted to office buildings.

Answer 1

substitute goods, fares price of bus 02 brice a Since both increase will increase sernices and demand curne to and demand for Taxi thus thift the increase rightwards leading equitiarium fréce equilibrium Quantity امام Curue (6) This will reduce the supply of Tari drivers and shift the supply leftwards to increase in equilibri-peick frice and fall in tenel of Quantity the leading equilibrium & duantity to -> 个 curre leftwards to at thift occurs PX neue Y is ambiguous. E lets are ( Increase in the frice of taxi permit mill increase cost of froduction and thift the supply s's' As consumer income increases demands rightward to slot and equilibrium point Ea where has equilibrium frice increased 'and infart equilibrium Quantity d) when parking converted to office building, the supply of Taxi services mill decrease and shift the supply Leftwards to sisi leading to increase fuice and fall in ouantity fice PL aa cune Quantity equilibrium