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Licensed Taxis versus Grab The market for taxis is tightly controlled by local regulations

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Licensed Taxis versus Grab The market for taxis is tightly controlled by local regulations. If you wish to operate a taxi, then you need a licence plate. The number of licence plates are strictly controlled by local governments/councils. With limited supply and excess demand the price of these licences is often very high, for some major cities in the world. Taxi drivers borrow money, perhaps remortgage their homes to buy a licence plate. They pay off the loan over their working career and then sell the licence plate once they decide to retire. Highly valued licence plates is the case in many major cities of the world such as Hong Kong, London, New York and Paris. The arrival of companies like Uber and Grab, bring new competition into the taxi market and present substantial threats to the value of a licence plate. Taxi drivers with licence plates hold a couple of trump cards. First, in major cities they can cause chaos by going on strike, park up in the street and cause major congestion. Second, they have strong political power. If local governments make money by selling licence plates, then they too are interested in protecting the livelihoods of taxi drivers. For example, in Barcelona, local taxi drivers with licence plates succeeded in changing the law and now anyone wishing to use a service such as Uber or Lyft must make a booking at least one hour before commencing the journey. If you wish to take a ride in a taxi immediately, then by law you need to use a licensed taxi driver. Questions: (i) License to operate a taxi is an example of: a) Economies of scale b) Monopoly c) Monopolistic competition d) Barrier to entry Please choose one answer only and briefly explain. (ii) Grab and Uber make the taxi market closer to perfect competition because: a) There is free entry and exit to the market b) There is closer to perfect information c) Drivers are closer to being price takers d) All of the choices are correct Please choose one answer only and briefly explain. (iii) Economic theory predicts that greater competition from Uber and Lyft will be better for consumers because a) Prices will fall and the quantity of rides offered will increase b) Prices will rise and the quantity of rides offered will increase c) Prices will fall and the quantity of rides offered will decrease d) Prices will rise and the quantity of rides offered will decrease. Please choose one answer only and briefly explain.