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RE-CAP & REMIND
a) The taxi industry in NSW used to have a monopoly before the arrival of Uber. Explain with reference to the characteristics of a monopoly why this was so. How much did a taxi license cost?
b) Assuming that the industry was making economic profits, illustrate the situation of the taxi industry monopoly in a diagram. Your diagram must be half an A4 page.
c) If this was the situation in the short run, what would happen in the long run and why?
d) Explain with reference to the characteristics of a monopoly, how Uber was able to enter the market in NSW.
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a) Now that Uber has entered the NSW taxi services market, explain why the industry has changed from a monopoly to one that is closer to monopolistic competition. b) Re-draw your diagram in 1.
b and explain the transition from the short run to the long run after the entry of Uber. Your diagram must be half an A4 page.
c) Compare and contrast your answer in 2.b to the long run situation in a perfectly competitive market and the long run situation in a monopoly.
d) Assuming that the market has become monopolistically competitive, what are some strategies that taxi drivers could implement to help retain some of their profits, even in the long run?
e) take a photograph of an example of a firm (/s) in monopolistic competition. Share your example on social media (Twitter, Facebook, Instagram, Weibo, QQ, etc.) using the hashtags: #mqecon111 and #mqmoncomp). Include a screenshot of your social media posting - your screenshot should be just half an A4 page).
QUESTION 01 & QUESTION 02 should be stapled together with ONE cover sheet & one double-sided blank paper for the last page. The cover sheet is at the end of this document. Label this cover sheet "Question 01 & 02”.
a) Re-draw your final diagram in 2.
b - where you are re-drawing only the long run situation under monopolistic competition. Suppose that there is an increase in the price of petrol, show the short run impact on your diagram. Your diagram should be half an A4 page. b) Explain your answer to 3.a.
c) Re-draw your final diagram in 2.b – where you are re-drawing only the long run situation under monopolistic competition. Suppose that there is an increase in the price of car number plate registration, show the short run impact on your diagram. Your diagram should be half an A4 page.
d) Explain your answer to 3.c.
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a) Research question – For traditional taxis, fares are regulated and not determined by the market. Draw a diagram of a taxi market where fares are capped with an enforced 'price ceiling that is set at $2.50 per kilometre whereas the free market equilibrium price would be $3.00 per kilometre. Your diagram should be half an A4 page. Clearly label the quantity traded (exchanged between buyers and sellers).
b) Using your diagram in 4.a, critically comment on whether all consumers are actually better off under this price ceiling compared to a free market equilibrium.
c) Under Uber, where there is no price ceiling, there is 'surge pricing' where drivers can increase their fares based on unusual increases in demand, based on what consumers are willing and able to pay. Use a graph of the market to depict such a situation of surge pricing (that takes the price beyond $3.00 per kilometre). Your diagram should be half an A4 page. Compare the two free market equilibrium points.
d) Using your diagram in 4.c, critically comment on whether all consumers are actually better off under surge pricing compared to a price ceiling.
e)take a photograph of an example of a firm's costs. Share your example on social media (Twitter, Facebook, Instagram, Weibo, QQ, etc.) using the hashtags: #mqecon111 and #mqcosts). Include a screenshot of your social media posting - your screenshot should be just half an A4 page).
QUESTION 03 & QUESTION 04 should be stapled together with ONE cover sheet & one double-sided blank paper for the last page. The cover sheet is at the end of this document. Label this cover sheet "Question 03 & 04”.
APPLICATION & AWARENESS
a) For the purposes of this question, assume that the newly formed taxi services market that includestraditional taxis and Uber cars, is perfectly competitive (perfect competition). Draw a situation of thisindustry in long run conditions. The market is to be on the left and an individual firm is to be on theright. Your entire diagram should take up one full landscaped A4 page.
b) Explain, in detail, the long run conditions in 5.a.
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a) Assume now that the extreme weather event (in Question 5) has completely disappeared (of course, remember that the population is still halved). Now, why would some taxi drivers be unable to leave or exit the industry in the short run? What is their short run decision making rule when experiencing losses and why?
b) Draw two diagrams for two separate firms in a perfectly competitive market: one which is better off shutting down in the short run and one which is better off continuing to operate in the short run. Each diagram should be quarter of an A4 page.
c) Re-draw your diagram of your final answer in 5.c. Show the long run impact on this diagram. Your diagram should be half an A4 page.
d) Explain your answer to 6.c. e) 1 mark – take a photograph of an example of a firm (/s) in perfect competition. Share your example on social media (Twitter, Facebook, Instagram, Weibo, QQ, etc.) using the hashtags: #mqecon111 and #mqperfectcomp). Include a screenshot of your social media posting - your screenshot should be just half an A4 page)
QUESTION 05 & QUESTION 06 should be stapled together with ONE cover sheet & one double-sided blank paper for the last page. The cover sheet is at the end of this document. Label this cover sheet "Question 05 & 06”.
LEARNING LIFE LESSONS
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a) What is price elasticity of demand? What factors influence the price elasticity of demand for taxis?
b) Draw three diagrams of (just) the demand curve for each of the following market structures in three different graphs: Perfect Competition (firm), Monopolistic Competition and Monopoly. Mark a point “A” on all three diagrams which has the same P1 and Q1 for all three diagrams. Using these diagrams, comment on the differences in price elasticity of demand at this given point, A.
c) By reference to the characteristics of each market structure, elaborate on your answer to 8.b.
d) Show how the formulas of income elasticity of demand and cross elasticity of demand are related to the formula of price elasticity of demand.
e) 1 mark – take a photograph of an example of a firm in an oligopoly. Share your example on social media using the hashtags: #mqecon111 and #mqoligopoly). Include a screenshot of your social media posting - your screenshot should be just half an A4 page).
QUESTION 07 & QUESTION 08 should be stapled together with ONE cover sheet & one double-sided blank paper for the last page. The cover sheet is at the end of this document. Label this cover sheet “Question 07 & 08”.
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Economic Questions On Uber
An increase in the price of car number plate registration will work in favour of Uber. Fewer traditional taxis will be willing to register their taxis leaving consumers to opt for the available options which will be fewer traditional taxis and more Uber cabs. Such an increase will make the demand for the traditional taxis to rise since the supply will be relatively fixed. When the demand for the traditional cabs increases their prices may go up but only up to the capping threshold.
On the other hand, the increase in the price of car number plate registration would cause Uber to increase prices to balance the demand. This is because there will be an increase in demand on their service. However, this price increase on Uber to balance demand is only for the short term.
Economic profit equals total revenue minus total cost, where cost is measured in the economic sense as opportunity cost. An economic loss (negative economic profit) is incurred if total costs exceed total revenue. Accountants include only explicit costs in their computation of total cost. Include charges that must be paid for factors of production such as labor and capital, together with an estimate of depreciation. Profit computed using only explicit costs is called. It is the measure of profit firms typically report; firms pay taxes on their accounting profits, and a corporation reporting its profit for a particular period reports its accounting profits.
The halving of the population reduces the demand for the service, theoretically, by half. The decrease in demand causes excess supply to develop at the initial price. An increase in supply will cause a drop in prices, and as the prices fall, suppliers of the services become less willing to supply the services thereby decreasing output (Stanwick, 2013). An increase in demand for the services will lead to an increase in the quantity services or their availability and an increase in equilibrium price. The increase in demand will make suppliers supply more at the initial price. In this case, the decrease in demand causes prices to fall. Uber cabs are more likely to remain profitable in such economic conditions since they can drop their prices to lower than the set prices for the traditional cabs.
a) The decision to exit the business after such an event will depend on the extent to which one is operating at a loss. The typical reaction in that kind of scenario would be to try to make more sales as you wait to see if demand will stabilise. This is one reason that some taxi drivers will be unable to exit the industry in the short run. The other reason is that a taxi driver might not want to leave before they settle their losses. During such a season of low demand, it is not uncommon that a business would be operating on losses (Baron, Brogaard & Kirilenko, 2012).
d) The taxi drivers will continue to provide services until such a point where marginal revenues will equal marginal costs. In the short run, the decrease in demand will cause a decrease in prices. In the long run, the decrease in demand will cause a decrease in the output. In the short run a decrease in demand will cause firms to experience economic losses (Dreßler & Overesch, 2013). The taxi drivers may experience losses initially and some may opt to walk out of business.
The flat characteristic in the supply has occurred due to the competitiveness of the market. The death of the taxi drivers has driven down the supply of taxis while on the other hand the number of customers remains relatively higher. This causes a rise in demand of taxi services.
The deaths of the general population have led to a fall in demand for taxi services. In the first diagram the supply remains constant as the demand for the little supply diminishes. In the second case, the supply is affected by the fallen demand and begins to fall as well.
Price elasticity of demand is the responsiveness of the quantity of goods or services produced to a change in their prices. For most goods and services, a change in the price will always have an accompanying change in the quantity of those goods or services that will be produced. Factors that influence price elasticity for taxis include availability of alternatives like public transport, the nature of the change in the prices, for example temporary changes, and the price of the services relative to customers' other expenditures.
b)The differences in price elasticity are mainly caused by the availability of alternatives in the perfect competition and monopolistic competition markets. In the monopolies, there is little elasticity.
d) Relation between the formulas of income elasticity of demand and cross elasticity of demand Income Elasticity of Demand = % change in quantity demanded / % change in income
Cross elasticity of demand is simply given by;
CPEoD = (% Change in Quantity Demand for Good X)/(% Change in Price for Good Y)
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