Answer to Question #95139 in Microeconomics for Catalina

Question #95139
In City only taxicabs and privately owned automobiles are allowed to use
the highway between the airport and downtown. The market for taxicab
service is competitive. There is a special lane for taxicabs, so taxis are
always able to travel at 90 km per hour. The demand for trips by taxicabs
depends on the taxi fare P, the average speed of a trip by private automobile
on the highway E, and the price of gasoline G. The number of trips supplied
by taxicabs will depend on the taxi fare and the price of gasoline.

Solve for equilibrium taxi fare in a general case; that is, when you do
not know G and E. How the equilibrium taxi fare changes as G and
E change? Comment on your findings.
1
Expert's answer
2019-09-24T12:07:58-0400

As G, the price of gasoline goes up, the equilibrium price of a taxi fare will go up. And as E, average speed of private cars goes up, the price of the trip will go down. 

So, the equilibrium taxi fare in a general case is:

P = aG - bE + c, where a, b and c are unknown without additional information.


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