Question

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?

Answer 1

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.