Taxi operators must buy a medallion from the municipal government. If the price of these medallions rises, we expect the fares charged by taxi operators to ________ because ________.
A) rise; higher input prices decrease supply
B) rise; higher input price increase demand
C) rise; there would be more taxis
D) fall; taxi rides are a luxury service
E) fall; passengers substitute bus rides

Question

Quizplus · Accepted Answer

If the price of medallions rises, it means that the cost of owning and operating a taxi has increased. This increases input costs for taxi operators and, as a result, decreases the supply of taxis. With a decrease in supply, the market equilibrium price will increase, causing taxi fares to rise.

Taxi Operators Must Buy a Medallion from the Municipal Government