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Chapter 4: Q2. (page 189)

Assume that the quota limit is 8 million rides. Suppose demand decreases due to a decline in tourism. What is the smallest parallel leftward shift in demand that would result in the quota no longer having an effect on the market? Illustrate your answer using Figure 4-7.

Short Answer

Expert verified

The smallest decrease in demand will be 4 million rides.

The diagram below shows the demand curve shift from D1to D2.

Step by step solution

01

Explanation 

The quota limit is 8 million rides. The effect of quota will be eliminated when the demand and supply should be equal after the demand shift to the left. The diagram below shows that the quota has no effect.

The demand curve shift from D1to D2, the change in demand is by 4 million rides, i.e., demand fall by 4 rides. When the price is $5 per ride, the demand is 10 million rides, and now after a shift at $5 per ride, the demand is 6 million rides; thus, the smallest leftward shift of the demand curve will be by 4 million rides.

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Most popular questions from this chapter

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?

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

  1. The White House urged Congress to pass a package of temporary spending increases and tax cuts in early 2009, a time when employment was plunging and unemployment soaring.
  2. With oil prices plummeting, Canadian and U.S. oil companies have been forced to shut down their productive wells. In cities throughout North Dakota, Wyoming, Taxes, and Alaska, restaurants and other consumer businesses are failing.
  3. In the mid-2000s, Spain, which was experiencing a big housing boom, also had the highest inflation rate in Europe.

True or false? Explain your answer. A price ceiling below the equilibrium price of an otherwise efficient market does the following:

  1. Increases quantity supplied
  2. Makes some people who want to consume the good worse off
  3. Makes all producers worse off

The state legislature mandates a price floor for gasoline of PF per gallon. Assess the following statements and illustrate your answer using the figure provided.

  1. Proponents of the law claim it will increase the income of gas station owners. Opponents claim it will hurt gas station owners because they will lose customers.
  2. Proponents claim consumers will be better off because gas stations will provide better service. Opponents claim consumers will be generally worse off because they prefer to buy gas at cheaper prices.
  3. Proponents claim that they are helping gas station owners without hurting anyone else. Opponents claim that consumers are hurt and will end up doing things like buying gas in a nearby state or on the black market.

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