A few years ago, the price of New York City taxi medallions hit $1,000,000. What do...

A few years ago, the price of New York City taxi medallions hit $1,000,000. What do you think was behind the increases in the price of New York City taxi medallions? Recently, however, the price NYC taxi medallions has dropped to around $200,000. What do you think has contributed to this decline in the price of medallions? Should the city intervene in the market for these medallions? How are tax owners, drivers, and customers may be affected by the medallion price?

Be sure to use your knowledge of supply and demand when discussing these questions.

Note: Recently as a result of a campaign by NYC taxi owners/companies the City has agreed to place some restrictions on the number of UBER (and LYFT) permits. What do you expect the effect of these restrictions to be on the medallion market?

Expert Solution

The main reason behind the increase in the prices of New York City taxi medallions was the existence of few players in the market which helped in keeping the prices high. It was almost a monopoly type of market structure where single seller controls the supply of cars in the market. The recent decline in the price of taxi medallions has occurred because of the entry of new players in the market selling taxi services at a low price. With the entry of private players like Uber etc, the price of taxi medallions has fallen. This is because entry of new firms has led to rightward shift of the supply curve of taxi in the country leading to a fall in the price level of taxis. Yes, the city should intervene and keep a price floor and also make the licensing procedure of taxi companies strict and stringent to prevent the losses of firms. Taxi owners and drivers have to suffer losses and fall in the salary levels because of this drastic decline in the price of taxis while customers are benefited with the decline in the prices of taxi.

Placing restrictions on the number of permits will help in limiting the number of new players that can enter this market and this will help in increasing prices and reduce the losses of taxi owners and drivers.

Rahul Sunny answered 2 years ago

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