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Macroeconomics
5th Edition
ISBN: 9781319098759
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
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Question
Chapter 3, Problem 1QFT
To determine
The fact accounting for unavailability of taxis on bad weather days before arrival of company U.
Concept Introduction:
Competitive Market: When many buyers and sellers interact with each other for their own incentive, it is referred to as a market. Price is determined by the
Expert Solution & Answer
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Answer to Problem 1QFT
According to the given case, the market was highly competitive, as the price was not set by the taxi drivers and was set by regulators.
Explanation of Solution
- The cab market in New York City was competitive before the arrival of Company U because the regulators set the price according to the demand and supply of the market and the taxi drivers follow these prices.
- If the market is not competitive then the taxi drivers would have set their own prices and would not have followed the market price. Thus, there were many sellers and many buyers.
- During the good weather condition, drivers anticipate that there would be high demand; therefore, enough cabs should be supplied.
- Whereas, at bad weather, time drivers anticipate that there would be very low or even no demand; therefore, they reduce the supply by themselves.
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