Instruction: Answer the Case Study guided by the outline parts given below. Provide reliable references if needed. CASE STUDY: ADAM SMITH WOULD HAVE LOVED UBER You have probably never lived in a centrally planned economy, but if you have ever tried to hail a cab in a major city, you have likely experienced a highly regulated market. In many cities, the local gov- ernment imposes strict controls in the market for taxis. The rules usually go well beyond regulation of insurance and safety. For example, the government may limit entry into the market by approving only a certain number of taxi medallions or permits. It may determine the prices that taxis are allowed to charge. The gov- ernment uses its police powers-that is, the threat of fines or jail time-to keep unauthorized drivers off the streets and to prevent all drivers from charging un- authorized prices. Recently, however, this highly controlled market has been invaded by a disrup- tive force: Uber. Launched in 2009, this company provides an app for smartphones that connects passengers and drivers. Because Uber cars do not roam the streets looking for taxi-hailing pedestrians, they are technically not taxis and so are not subject to the same regulations. But they offer much the same service. Indeed, rides from Uber cars are often more convenient. On a cold and rainy day, who wants to stand on the side of the road waiting for an empty cab to drive by? It is more pleas- ant to remain inside, use your smartphone to arrange for a ride, and stay warm and dry until the car arrives. Uber cars often charge less than taxis, but not always. Uber allows drivers to raise their prices significantly when there is a surge in demand, such as during a sudden rainstorm or late on New Year's Eve, when numerous tipsy partiers are looking for a safe way to get home. By contrast, regulated taxis are typically pre- vented from surge pricing. Not everyone is fond of Uber. Drivers of traditional taxis complain that this new competition eats into their source of income. This is hardly a surprise: Suppliers of goods and services usually dislike new competitors. But vigorous competition among producers makes a market work well for consumers. That is why economists love Uber. A 2014 survey of several dozen prominent economists asked whether car services such as Uber increased consumer well- being. Yes, said every single economist. The economists were also asked whether surge pricing increased consumer well-being. Yes, said 85 percent of them. Surge pricing makes consumers pay more at times, but because Uber drivers respond to incentives, it also increases the quantity of car services supplied when they are most needed. Surge pricing also helps allocate the services to those consum- ers who value them most highly and reduces the costs of searching and waiting for a car. If Adam Smith were alive today, he would surely have the Uber app on his phone. 1-2c Principle 7: Governments Can Sometimes Improve Market Outcomes If the invisible hand of the market is so great, why do we need government? One purpose of studying economics is to refine your view about the proper role and scope of government policy. One reason we need government is that the invisible hand can work its magic only if the government enforces the rules and maintains the institutions that are key to a market economy. Most important, market economies need institutions to enforce property rights so individuals can own and control scarce resources. Suggested Outline in Solving Business Cases 1.0 Time Context 2.0 Viewpoint 3.0 Central Problem 4.0 Statement of Objectives 4.1 Must Objectives 4.2 Want Objectives 5.0 Areas of Consideration 5.1 External Environment 5.1.1 Threats 5.1.2 Opportunities 5.2 Internal Environment 5.2.1 Strengths 5.2.2 Weaknesses 6.0 Alternative Courses of Action 7.0 Final Decisions 8.0 Detailed Action Plan