(b) Show that the equilibrium price (p*) and number of trips demanded (Q*) are givenby:p* =12090-C+T1800 100C - 20T90-C + T(c) The local government wants to reduce congestion on the airport road by loweringthe use of taxis to Q' < Q*. Suppose that a tax is imposed on petrol which raises Cfrom C = 10 to C = 15. Use diagrams to illustrate the impact of this tax on theprices and quantities in the market for taxis.(d) The local government could instead reduce congestion by creating licenses whichput a hard limit Qmax = Q' on the maximum number of daily trips to the airport.Is the amount of total surplus and deadweight loss created in the taxi marketdifferent to solution proposed in part (c)? Use diagrams to assist you in your answer.(e) Would increasing T by building a new railway line to the airport be a better way toachieve the government's goals? Evaluate the pros and cons of this solution relativeto creating a tax on petrol =23. The daily market demand for trips from the airport to the city by taxi is given by QD100 (T+60)p, where T≥ 0 is the number of trains from the airport to the city perday. The market supply of taxis is given by Qs = (30-C)p - 20 where C ≥ 0 is thecost of petrol (per litre).(a) What happens to the demand for taxi trips as we increase T? Provide someeconomic intuition for this effect.

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(b) Show that the equilibrium price (p*) and number of trips demanded (Q*) are given by: p* Q* = 120 90-C+T 1800-100C - 20T 90-C+T (c) The local government wants to reduce congestion on the airport road by lowering the use of taxis to Q' < Q*. Suppose that a tax is imposed on petrol which raises C from C = 10 to C = 15. Use diagrams to illustrate the impact of this tax on the prices and quantities in the market for taxis.

(b) Show that the equilibrium price (p) and number of trips demanded (Q) are given by: p* Q* = 120 90-C+T 1800-100C - 20T 90-C+T (c) The local government wants to reduce congestion on the airport road by lowering the use of taxis to Q' < Q*. Suppose that a tax is imposed on petrol which raises C from C = 10 to C = 15. Use diagrams to illustrate the impact of this tax on the prices and quantities in the market for taxis.

ECON MICRO

5th Edition

ISBN:9781337000536

Author:William A. McEachern

Publisher:William A. McEachern

Chapter5: Elasticity Of Demand And Supply

Section: Chapter Questions

Problem 1.1P: (Calculating Price Elasticity of Demand) Suppose that 50 units of a good are demanded at a price of...

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