Economics
Economics
5th Edition
ISBN: 9781319066604
Author: Paul Krugman, Robin Wells
Publisher: Worth Publishers
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Question
Chapter 3, Problem 1BCQ
To determine

Reason for unavailability of cabs during snowstorms.

Introduction:

When the large number of buyers and sellers interact with each other for their own incentive is referred as market. Price is determined by the aggregate demand and aggregate supply of the market, no single seller or single buyer can determine price in the competitive market.

Expert Solution & Answer
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Explanation of Solution

According to the given case, the market was highly competitive, as the price was not set by the taxi drivers it was set by regulators. The cab market in was competitive before the U cab service 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 than the taxi drivers would have set their own prices and would have not followed the market price. Thus, there were large number of sellers and the large number of buyers. During the good weather, conditions drivers anticipate that there would be high demand therefore the enough cabs are 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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