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Chapter 4: Q1. (page 189)

Suppose that the supply and demand for taxi rides is given by Figure 4-7 but the quota is set at 6 million rides instead of 8 million. Find the following and indicate them on Figure 4-7.

  1. The price of a ride
  2. The quota rent
  3. Suppose the quota limit on taxi rides is increased to 9 million. What happens to the quota rent?

Short Answer

Expert verified
  1. The price of a rise will be $7.
  2. The quota rent will be $4.
  3. The quota rent will be $1.

Step by step solution

01

Explanation for part (a)

The price of a ride will be $7 for the demand of 6 million rides. Hence, the demand price for 6 million rides will be $7.

The demand price is represented by point A.

02

Explanation for part (b)

The quota rent will be the difference between demand price and supply price. The demand price is $7, and the supply price is $3; thus, the quota rent will be $4 (=7 – 3).

03

Explanation for part (c)

The demand price for 9 million rides will be $5.50, and the supply price for 9 million rides will be $4.50. Thus, the quota rent will be $1 (=5.50 – 4.50).

The demand price is represented by point C, and the supply price is represented by point D.

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Most popular questions from this chapter

Why has the fight between Uber and the taxicab industry turned political?

On game days, homeowners near Middletown University’s stadium used to rent parking spaces in their driveways to fans at a going rate of 11.Anewtownordinancenowsetsamaximumparkingfeeof7.

Use the accompanying supply and demand diagram to explain how each of the following corresponds to a price-ceiling concept.

  1. Some homeowners now think it’s not worth the hassle to rent out spaces.
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Explain how each of the following adverse effects arises from the price ceiling.

d. Some fans now arrive several hours early to find parking.

e. Friends of homeowners near the stadium regularly attend games, even if they aren’t big fans. But some serious fans have given up because of the parking situation.

f. Some homeowners rent spaces for more than $7 but pretend that the buyers are nonpaying friends or family.

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Question: Explain how each of the following illustrates one of the three principles of economy-wide interactions.

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