Because most cities issue fewer taxi medallions (licences)than taxi owners could operate profitably,the equilibrium passenger fare is ________ the direct cost of operating a taxicab.
A) higher than
B) lower than
C) equal to
D) either lower than or equal to
E) unrelated to

Question

Quizplus · Accepted Answer

Since there are fewer taxi medallions than could operate profitably, it means that there is scarcity in the market. When demand outstrips supply, prices tend to rise, hence the equilibrium passenger fare would be higher than the direct cost of operating a taxicab.

Because Most Cities Issue Fewer Taxi Medallions (Licences)than Taxi Owners