Economic theory predicts (assuming the supply curve for taxicab rides is upward sloping and the demand curve for taxicab rides is downward sloping) that if New York City had no medallion system for taxicabs, the price of a taxicab ride would:
A)increase, because of the greater safety hazards.
B)not change, since the number of taxis on the road depends on the consumer demand for taxi rides.
C)decrease from its current level.
D)increase, since there would be many more taxicabs on the streets, but only slightly.

Question

Quizplus · Accepted Answer

The medallion system limits the number of taxicabs on the road by only issuing a limited number of medallions. This creates an artificial scarcity of taxicabs and drives up the price of a taxicab ride. Without the medallion system, the number of taxicabs on the road would not be limited, and competition would drive down the price of a taxicab ride. Thus, the price would decrease from its current level.

Economic Theory Predicts (Assuming the Supply Curve for Taxicab Rides