Suppose the government limits the number of cabs that can operate in the city by issuing a limited number of medallions.Later,if the government decides to regulate fares instead and sets them below current levels:
A)surpluses will result in the taxicab market.
B)the resale value of the medallion will fall.
C)the demand for taxicabs will decline.
D)congestion during peak traffic hours will decrease.

Question

Quizplus · Accepted Answer

If the government sets fares below current levels, it would lead to a decrease in the profitability of operating a taxi, which would result in the value of the medallions falling. This is because the medallions, which are limited in number, were originally issued to control the number of taxis on the streets, and their value is largely determined by the potential for profit. Thus, if the profits are expected to decrease due to fare regulation, the medallion holders may find it difficult to sell their medallions at the same prices they initially paid for them.

Suppose the Government Limits the Number of Cabs That Can