The accompanying diagram shows the demand and supply curves for taxi rides in New York City.

a. At E₁ the market is at equilibrium with 600 million miles of rides transacted at an equilibrium price of $2.50. Calculate consumer surplus, producer surplus, and total surplus at E₁.

b. Uber€™s entry into the market reduces the quantity of rides demanded from taxis by 30% at every price, shifting the demand curve leftward. Assume that New York City politicians respond by imposing a regulated price of $2.50 per mile. Calculate consumer surplus, producer surplus, and total surplus for the taxi market after Uber has entered the market.

c. After complaints from riders, New York removes the regulated price of $2.50 per mile. What happens to the equilibrium price and quantity? How will taxi drivers and riders be affected?

Transcribed Image Text:

Price (dollars per mile) $5.00 3.50 E, 2.50 E2 1.83 1.30 (after D uber) 0.50 240 400 600 1,200 Quantity of taxi rides (millions of miles) 840 . ...