Economics 9708/42 — February/March 2022
Cambridge A-Level · A Level Data Response and Essays · worked solutions for every part, with the mark scheme
Topics Government Policies to Correct Market Failure · Externalities, Social Costs and Benefits · Market Structures · The Multiplier and National Income Determination · Costs of Production · Efficiency and Market Failure · +11 more
Changes in the New York yellow taxi industry
The yellow taxi is one of New York’s famous sights.
There are two types of drivers of yellow taxis: owner-drivers who own the licence and lease-drivers who pay a yearly fee for the licence to the owner. Historically, owning a licence was valuable because the demand for them has been greater than the supply. The huge demand for licences meant that, in 2011, two licences sold for US$1m each.
For lease-drivers the only way to cover the lease fee and expenses such as fuel and maintenance is to work long hours and have few days off. By 2020 the value of the licence had fallen significantly leaving owners in financial hardship.
It was in 2011 that things began to change. Until then part of New York, known as Manhattan, had always been monopolised by yellow taxis. They worked only in the busiest areas resulting in large numbers of yellow taxis often seen in movies and on television.
In 2011 the local government allowed the introduction of another taxi service (painted green) in the less densely populated areas of the city where yellow taxis typically did not go. Regulations stopped the green taxis picking up customers in Manhattan, and at the airports – unless they were pre-booked. Also in 2011, a third company launched a rival taxi service right in Manhattan. This service again could not pick up customers in the street but it could be booked on a smartphone app and was cheaper than the yellow taxi. By 2019 this new company’s taxis outnumbered the yellow taxis by four to one.
In 2018, as a result of protests and strikes organised by the yellow taxi drivers’ trade union, the local government agreed to limit the number of alternative taxis. Also, the body responsible for the licences did not increase the fee.
In 2018, there was also a plan to introduce a minimum wage for drivers whose taxis were booked using the smartphone app. One analyst said: ‘this would put enormous economic pressure on the business model of the app-based companies who operate on methods that have very low labour costs.’
In 2019, there was a proposal to introduce a surcharge for taxis, known as congestion pricing. Every taxi trip will have a surcharge added to the fare and the funds from this would go towards repair work on the underground subway (metro) system to improve its efficiency and reduce fares.
Source: Geographical, March 2019 p28 ff
Distinguish between a fixed cost and a variable cost and identify one example of each from the article.
Cross-subsidisation is when consumers of one product are charged higher prices in order to subsidise consumers of other products who then pay lower prices.
Identify an example of cross-subsidisation in the article and consider whether it can be justified.
Analyse whether there is any evidence that the market structure for New York taxis could be called a monopoly.
Identify two types of local government intervention allowed in 2018 and discuss how these might affect the profits of taxi owners.
The rest of this paper
6 more questions- Q2Efficiency and Market Failure · Market Structures · Externalities, Social Costs and Benefits · Government Policies to Correct Market Failure25M
- Q3Indifference Curves and Budget Lines25M
- Q4Demand for and Supply of Labour · Wage Determination and Labour Market Intervention · Equity, Poverty and Redistribution25M
- Q5Economic Development and Living Standards · Economic Growth and Sustainability · Characteristics of Countries at Different Levels of Development · Relationships Between Countries at Different Levels of Development25M
- Q6Employment and Unemployment · Effectiveness of Macroeconomic Policies · The Multiplier and National Income Determination25M
- Q7The Multiplier and National Income Determination · Macroeconomic Objectives and Policy Conflicts25M