Suppose a city limits the number of cabs that can provide taxi service by issuing medallions.
If the medallions can be bought and sold and they command a positive price,you can conclude that:
A)fares are above the competitive levels.
B)no illegal cabs will operate in the city.
C)the demand for cabs is lesser than the supply of cabs.
D)the supply curve for taxicabs is horizontal.

Question

Quizplus · Accepted Answer

The fact that medallions can be bought and sold for a positive price suggests that the demand for taxis is higher than the supply of taxis. In turn, this indicates that the fares charged by licensed taxi providers are above the competitive market level. By limiting the number of cabs available, the city has restricted the supply of taxis, leading to higher prices for consumers.

Suppose a City Limits the Number of Cabs That Can