Question

Suppose that taxi services and ride-share services are substitute goods for households. Assume that the supply curves for taxi and ride-share services are upward-sloping and the demand curves are downward-sloping.

Consider the effect of an increase in licensing costs for ride-share service providers on the markets for taxi and ride-share services by answering the questions below.

a. Explain the partial equilibrium effect on the market for ride-share services.

(6 marks)

b. Explain the general equilibrium spill-over effect on the taxi services market.

(6 marks)

c. Explain the general equilibrium feedback effect on the ride-share market.

(6 marks)

d. If the supply curve for the taxi services market is instead perfectly inelastic and the supply curve for ride-share services perfectly elastic, would the effects you have outlined in a., b. and c. be larger or smaller or vanish altogether?