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Now let's assume taxis and Ubers ARE NOT perfect substitutes, and let's assume taxis and Uber have negligible differences in their prices, but that customers

Now let's assume taxis and Ubers ARE NOT perfect substitutes, and let's assume taxis and Uber have negligible differences in their prices, but that customers DO HAVE a preference between taxis and Ubers.

Uber has many features that taxis don't have:

  • For one, the drivers have user reviews, which filters out the crazy drivers. That makes Uber safer;
  • Second, Uber arranges all the payment issues up front, so you don't have to haggle for some crazy price in a city and currency that you are not yet familiar with. That makes Uber safer;
  • And finally, Uber has a GPS tracker, so if the cab driver tries any funny business you've got a record of where you were and when. That makes Uber safer;
  • Not to mention you can see the Uber driver's location on your phone so you know how far away he is. So yea, Uber is just better in so many ways.

Long story short, consumer tastes change.

What happens to the Demand curve for taxis, and what happens to the price of taxis?

Hints:

In this scenario, the supply of taxis is fixed at the allotted amount of 18,000 (or one cab per 833 people). That does not change.

Also, I suggest you draw this model on the back of a napkin so you can visualize it.

A:

Due to competition from Uber drivers, overall demand for taxis would shift to the right, decreasing the price that cabs can charge.

B:

Due to competition from Uber drivers, overall demand for taxis would shift to the left, increasing the price that cabs can charge.

C:

Due to competition from Uber drivers, overall demand for taxis would shift to the left, decreasing the price that cabs can charge.

D: Due to competition from Uber drivers, overall demand for taxis would shift to the fight, increasing the price that cabs can charge.

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