Answered: Part 1. The figure below shows the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Part 1. The figure below shows the market for rides are services during a typical day. Assume that d1 represents the demand for rides during normal periods. Therefore, on a normal day the normal price for a ride is $16 and 6000 rides are taken. If congress bans surge pricing, it is effectively imposing a price ceiling of $16 shown by the horizontal line labeled PC. Suppose that there is an increase in the demand for rides. Use the drag tool to illustrate the effect of the surge ban, assuming it leads to a shortage of 4000 rides. Part 2. Consider alternative modes of transportation to rides are services such as taxi cabs. How would the ban on surge pricing impact the market for rides by taxi cabs? Use the drag tool to illustrate on the market graph below.

Price per ride
32
Ñ NNNNNN
30
24
10
8
6
4
2
0
Rideshare Services
8
D1
Quantity of rides
demanded (in 1000s)
ㅎ

Expert Solution

Step 1

Price ceiling:

A price ceiling is a govt-imposed barrier on the competitive price level of the economy. When govt thinks that the market-clearing price is too high and buyers are getting exploited, it steps in and imposes a ceiling below the equilibrium level. Producers are prevented from charging higher prices than this ceiling.

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