Cities like San Francisco and New York that require a driver to buy a city-issued taxi medallion before the driver can legally operate a taxi are shifting the supply curve for taxis to the left relative to where it would be without the requirement for a medallion.
a. Briefly explain why the supply curve for taxi rides shifts to the left. What is the effect on the market price of taxi rides from the medallion requirement?
b. According to a news report, in 2008, medallions in San Francisco were selling for $250,000. In late 2018, “the market for taxi medallions in San Francisco is now totally frozen. No one has bought or sold one in over two years.” Why would taxi medallions have been worth $250,000 in 2008? Why was it apparently impossible to sell them at any price in 2018?