Graphically, the effect of entry of Uber on incomes of taxicab drivers, under the assumption that Uber cars cannot pick up fares hailed from the street and that there are some people who prefer to hail cabs rather than use an app. How does the graph changes if that restriction is lifted? Concept Introduction: Substitute Good: When a product can be used as an alternative to the other, it is called the substitute good. Substitutes may or may not be perfect. In case of perfect substitution one product performs exactly the same way that of the other. That is why in case of perfect substitutes if the price of one product rises the entire demand for that product shifts to the other product. However, for imperfect substitutes, a portion of the demand may shift to the other product in case of a price change. Since, Uber and taxicab are not perfect substitutes because of the assumption that Uber cars cannot pick up fares hailed from the street and that there are some people who prefer to hail cabs rather than use an app, entry of Uber will take away a portion of taxicabs demand thereby shifting the demand faced by the taxicab downwards.

Question

Want to see the full answer?

Answer 1

Question

Chapter 5, Problem 2QFT

To determine

Graphically, the effect of entry of Uber on incomes of taxicab drivers, under the assumption that Uber cars cannot pick up fares hailed from the street and that there are some people who prefer to hail cabs rather than use an app. How does the graph changes if that restriction is lifted?

Concept Introduction:

Substitute Good:

When a product can be used as an alternative to the other, it is called the substitute good. Substitutes may or may not be perfect. In case of perfect substitution one product performs exactly the same way that of the other. That is why in case of perfect substitutes if the price of one product rises the entire demand for that product shifts to the other product. However, for imperfect substitutes, a portion of the demand may shift to the other product in case of a price change.

Since, Uber and taxicab are not perfect substitutes because of the assumption that Uber cars cannot pick up fares hailed from the street and that there are some people who prefer to hail cabs rather than use an app, entry of Uber will take away a portion of taxicabs demand thereby shifting the demand faced by the taxicab downwards.

Expert Solution & Answer

Want to see the full answer?

Check out a sample textbook solution

See solution

Students have asked these similar questions

MC The diagram shows a pharmaceutical firm's demand curve and marginal cost curve for a new heart medication for which the firm holds a 20-year patent on its production. Assume this pharmaceutical firm charges a single price for its drug. At its profit-maximizing level of output, it will generate a total profit represented by OA. areas J+K. B. areas F+I+H+G+J+K OC. areas E+F+I+H+G. D. - it is not possible to determine with the informatio OE. the sum of areas A through K. (...) Po P1 Price F P2 E H 0 G B Q MR D ō

Price Quantity $26 0 The marketing department of $24 20,000 Johnny Rockabilly's record company $22 40,000 has determined that the demand for his $20 60,000 latest CD is given in the table at right. $18 80,000 $16 100,000 $14 120,000 The record company's costs consist of a $240,000 fixed cost of recording the CD, an $8 per CD variable cost of producing and distributing the CD, plus the cost of paying Johnny for his creative talent. The company is considering two plans for paying Johnny. Plan 1: Johnny receives a zero fixed recording fee and a $4 per CD royalty for each CD that is sold. Plan 2: Johnny receives a $400,000 fixed recording fee and zero royalty per CD sold. Under either plan, the record company will choose the price of Johnny's CD so as to maximize its (the record company's) profit. The record company's profit is the revenues minus costs, where the costs include the costs of production, distribution, and the payment made to Johnny. Johnny's payment will be be under plan 2 as…

Which of the following is the best example of perfect price discrimination? A. Universities give entry scholarships to poorer students. B. Students pay lower prices at the local theatre. ○ C. A hotel charges for its rooms according to the number of days left before the check-in date. ○ D. People who collect the mail coupons get discounts at the local food store. ○ E. An airline offers a discount to students.