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.

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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.

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