Economics HW Help Please!?

Question

Demand & Suppky for Taxi Rides

Fare (per ride)         Qty Demanded         Qty Supplied
$7.00                                  10                               12
$6.50                                  11                               11
$6.00                                  12                               10
$5.50                                  13                               9
$5.00                                  14                               8
$4.50                                  15                               7

I have already found the equilibrium price and quantity (Pe = $6.50, Qe = 11)
If there was a price ceiling imposed by the city of $5.50, I already concluded there would be a 4 million ride shortage.

My question is:

If there was a market crash which resulted in poorer people which reduced the quanity of taxi rides demanded by 6 million ries a year at any price.  How would the effect of the ceiling price of $5.50 impact now?

Thanks!

COREY B · Accepted Answer

Well you can ALWAYS know that a price ceiling established by the government will cause a supply shortage. Because the price the most are willing to pay is 6.50, yet it is moved to 5.50. No one is going to buy a car.  Its cheaper to ride the taxi.  Okay so when everyone goes broke, that means the income of the consumers are changed and that is represented by a change in the varible in the demand function. Y=d+P+I+T (something like that). and well you would have to factor in these variables in the function.  My guess is that people might still want to get around, and when everyone is broke the value of money actually goes up and so 5.50 is worth more the taxi drivers who taxi people that pay

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Economics HW Help Please!?

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