In Metropolis only taxi cab and privately owned automobiles are allowed to use
the highway between the airport and downtown. The market for taxi cab service is competitive.
There is a special lane for taxicabs, so taxis are always able totravel at 55 miles per hour. The demand for trips by taxi cabs depends on the taxi
fare P, the average speed of a trip by private automobile on the highway E, andthe price of gasoline G. the number of trips supplied by taxi cabs will depends on
the taxi fare and the price of gasoline.
b. Suppose the demand for trips by taxi is given by the equation
Qd =1000 + 50G-4E – 400P . The supply of trips by taxi is given by the
equation Qs = 200 -30G+100P . On a graph draw the supply and demand
cruves for trips by taxi when G=4 and E=30. Find equilibrium taxi fare.
c. Solve for equilibrium taxi fare in a general case, that is, when you do not
know G and E. Show how the equilibrium fare changes as G and E changes.
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