Economic Assignment

Name
Instructor’s Name
Course
Date
Economics Assignment
Question 1
Taxi services are almost the same as uber services. They, therefore, act as substitutes to each other. When taxis start charging higher prices, the demand for uber services will increase from Q1 to Q2 because they will appear cheaper to consumers. The demand for taxis, on the other hands, will reduce in the same measure [see the graph]

The government’s investment into public transportation will reduce the cost of transportation. Uber consumers will, therefore, have more money to use uber services at will. The investment will, therefore, increase the demand for uber as shown in the graph below.

The announcement will reduce the demand for uber as consumers will be reluctant to use them because of insecurity. The demand curve will, therefore, shift from D to D1, suggesting a decline in the quantity of uber demanded from Q to Q.

The reduction in unemployment coupled with increase real wages and per capita income means that consumer a strong purchasing power as they have more money in their pockets. More consumers will be able to subscribe to uber services, leading to the increase of demand for uber [See the graph]

Question 2
At equilibrium, Labor supply = Labor Demand
Therefore, QS=QD10W=240-20W30W=240W=8Equilibrium price is £8 per hourEquilibrium quantity = (240-20(8))=80 driversThe minimum wage of £7 per hour is lower than £8. At this wage uber firms will be willing to higher more drivers, who will have to work for fewer hours worked than earlier and thus, lowering the market equilibrium.

At a higher minimum wage of £9, the number drivers to be hired will be
=240-20(9)=60 drivers. Supply of workers = 10W=10×9=90 driversExcess supply of labour=90-60=30 drivers The region marked with a thick blue arrow is the consumer surplus region. In that region, consumers enjoy uber services at prices less than they expected. The region marked with a thick black arrow is producer surplus. The region shaded green is the deadweight loss.

Comparatively, at a higher minimum wage of £9, the market equilibrium is destroyed. The demand for drivers drops to 60 as the supply rises to 90 drivers, unlike in the solution at £8, where both demand supply stands at 80. Further, while the resulting consumer surplus at £9 minimum wage is lower than the resulting consumer surplus at £8 minimum wage, the resulting producer surplus at £9 minimum wage is higher than the resulting producer surplus at £8 minimum wage.
Question 3
# of cars Total Cost Royalties to Uber Salary to Driver(s) Car Lease Payments Marginal Variable Cost Average Variable Cost Average Total Cost
0 100 100 0 0 0 0 0
1 150 100 10 40 50 50 150
2 235 100 25 110 85 67.5 117.5
Average Variable Cost=TVCQAverage Total Cost=TCQAverage Marginal Cost=∆TC∆QQuestion 4
(i) Perfectly Competitive market. Under this market structure, there are many firms; products are homogenous, no barriers to entry or exit of firms, and firm enjoy supernormal short-run profits,

(ii) This market structure or policy will benefit both consumers and producers. Consumers will benefit in the sense that forces of demand and supply determine the prices charges by uber. The consumers will, therefore, have the freedom to choose from a variety of transportation service providers. Producers will also find a new market to explore and try their luck.
(i) In the case where uber acquires all taxis, the market structure becomes a perfectly monopolistic as shown in the graph below.

Relative to a perfectly competitive market, this structure is neither beneficial to consumers nor producers. Consumers lack the proper knowledge of services or products on offer (Gans 847). They do not have the freedom to choose from many transport firms as they would wish because only one producer is authorization to participate in the market. This policy leads to poor quality services coupled with exploitation of consumers.
(ii) The policy encouraging perfectly competitive market structure is the best for the UK because in addition to promote quality of services, this structure ensures fairness both to producers and consumers.
Work Cited
Gans, Joshua; K. S. S. R. B. Principles of Economics with Student Resource Access 12 Months. New York: Cengage Learning, 2014.