Answer to Question #185987 in Microeconomics for dayavanti

Question

1.      One of the pandemic measures adopted by the city of Regina consists of a food-delivery fee cap (maximum fee) of 14% of the pre-tax order price. This fee is charged by delivery services such as Uber Eats, DoorDash, and Skip the Dishes. Some restaurants in the city argue that the cap (in percentage terms) is to high due to the small profits earned in this industry.

 

1.1.    Represent graphically the equilibrium in the market for food (restaurants) in the city in the absence of any interventions. (2 marks)

 

1.2.    Show the effect of the food-delivery fee cap on the outcome of this market and consumer and producer surplus. (2 marks)

 

1.3.    Explain and show graphically why some restaurants in the city complain about the food-delivery fee cap being too high. (2 marks)

 

Answer 1

1:

From the figure it can be seen that point E is the equilibrium for the market of food, where demand and the supply intersects.

2:

increase in cost incurred by consumers will lead to shift in supply curve from s to S1.

Increase in price increases producer surplus and decreases consumer surplus.

3:

From the figure it can be seen that point E1 is the equilibrium for the market of food, where demand and the supply intersects. Point E represents the situation after there has been an increase in price. The equilibrium price has risen and the quantity has fallen. People would choose to make food in their houses rather than ordering.