Suppose car-ride services (Uber, Lyft, etc.) are untaxed. The NYC government then decides to impose a...

Suppose car-ride services (Uber, Lyft, etc.) are untaxed. The NYC government then decides to impose a new tax of $2 per ride on suppliers of these services (drivers). The market is competitive, with downward-sloping demand and upward-sloping supply curves.

Answer true, false, or uncertain and explain in 1 sentence each. (Diagrams are not required, but may be useful.)

i. This tax will raise the price consumers pay for car rides.

ii. This tax will reduce consumer surplus in the market for car rides.

iii. This tax will raise spending by demanders of car-ride services.

Solutions

Expert Solution

a) Some of the tax incidence of that raised taxes wil fall on the consumer that will increase the price of the goods, and consumers will have to pay higher price. Statement is true.

b) As the consumers have to pay a higher price their surplus will fall in the market. statement is true.

c) False, it will reduce the spending by the demanders,

Rahul Sunny answered 1 year ago

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