Share
Explore BrainMass

elasticity in supply and demand

1.- Consider the supply and demand of taxi rides at night. The article discusses policies that are aimed at that market. Given the desired impact of the policies, what do you think are the market conditions that the government is trying to correct?.

2.- The article discusses the very strict test which is required for all taxi drivers. Explain what you think this would mean for the supply ( and shape or slope of the supply curve) for taxi rides in London.

3.- Consider the discussion of demand elasticity. Given your answer to question 2, how would you characterize the supply elasticity of this market? Think specially about the shape of the supply curve. What are the ramifications for the market?

4.- What could be the impact on the supply curve of changing the exam (for example, making it "less costly" for potential taxi drivers to take)? Show both supply curves on a graph and discuss the impact of a change in price. How is this related to supply elasticity?.

5.- Now turn to demand elasticity. One proposal from the article is to allow mini-taxis more freedom to compete with the regular taxis. How would this impact the elasticity of demand? Explain. What are other possible substitutes to taxis?

6.- Cab drivers have been against the proposal to increases fares at night, the article quotes one trade paper as saying that the price increases were " Appallingly handled." Assume the cab drivers are responding to the impact they believe such a price increase will have on total revenue. Explain what must be true about the demand elasticity.

Attachments

Solution Preview

Hope this helps. Remember in economics elasticity is how sensitive something is to changes in something else. How sensitive is price to supply? How sensitive is demand to supply (with prices the same). Will supply increase at exactly the same rate as demand? If not, there is at least some inelasticity in supply.

Case Study (MBA Economics)

Taxis Rank Disgust

Lead Story-Dateline: The Economist, March 16, 2002

London Taxi drivers seem to have a very special status in the city. In order to be
Eligible to become a Taxi driver, candidates are required to learn the city routes
In great detail and pass an exam based on this routes. (Learning the routes and passing the test often takes more than a year.) There are currently 24,000 taxi drivers in the city.
The official regulations for the taxi trade have been under some pressure for reform and the task has fallen to a man named Ken Livingstone.

Livingstone's proposals have, overall, been intended to increase the supply of Taxis in the city. One reform has been to increase the price of taxi rides after 8 pm through new surcharges. In some cases, this has meant that the price of a fare has ...

Solution Summary

Remember in economics elasticity is how sensitive something is to changes in something else. How sensitive is price to supply? How sensitive is demand to supply (with prices the same). Will supply increase at exactly the same rate as demand? If not, there is at least some inelasticity in supply.

Case Study (MBA Economics)

$2.19