The monthly market demand function for taxi service in Vancouveris given by Qd = 7,000 500P,
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Question:
The monthly market demand function for taxi service in Vancouveris given by Qd = 7,000 – 500P, and the market supply function is Qs= 500P – 1,000, where the quantity is in terms of trips and theprice is average fare per trip. Please show all steps of yourcalculation for following questions:
a) All drivers form a taxi driver association to lobby the citygovernment. At their request Vancouver government implements alicense system such that the maximum taxi service is restricted to2,000 trips. Calculate the wealth transfer and deadweight losscaused by this policy.
b) Suppose the monthly interest rate is 1%. What is the value ofall taxi licenses?
c) Who benefits from this lobbying? Who loses?
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