Answer to Question #92092 in Microeconomics for Akhil Sharma

Question #92092

You are the CEO of a taxi company in city A. A recent strike in your company by taxi drivers has resulted in a high wage settlement in city A. You now have to pay taxi drivers 10.0 per cent more wage compared to the wage before the strike took place. Should you increase taxi fares?

Expert's answer

The wage raise will increase cost which will increase rate to both consumers and taxi drivers based on elasticity.

If the demand is in elastic, the burden will go to the consumers.

But if the supply is inelastic, the burden will go to the taxi drivers.

However, if the fare goes beyond the market standard, people may stop hiring taxi and that will reduce the income of the taxi driver.

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Assignment Expert

30.07.19, 16:52

Dear akhil, if the supply is inelastic, the burden will go to the taxi drivers simply because using a taxi is not an inelastic service, people can do without it. So shift in price will drastically impact consumer demand. In this case if the prices of hiring a taxi increases people will opt for other means of transport and the taxi driver will lose cutomers.

akhil

30.07.19, 11:20

please explain why?if the supply is inelastic, the burden will go to the taxi drivers.

Answer to Question #92092 in Microeconomics for Akhil Sharma

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