Question

If taxi fares in a city rise, what will happen to the total revenue received by taxi operators? If the fares charged for subway rides, a substitute for taxi rides, do not change, what will happen to the total revenue earned by the subway as a result?

Answer 1

1. The total revenue received by taxi operators will decrease with the rise in taxi fares in the city, if there are available substitutes.

• However, this total revenue decrease is not absolute.  Passengers may still choose to take taxi rides instead of subway rides when other environmental factors are taken into account.

2. If, on the other hand, the subway fares do not change, that is, do not increase as a result of the increase in taxi fares, the total revenue earned by the subway will rise.

• In a city with subway, there is an effective substitute for taxi rides.  People will always prefer the more efficient system or substitute when they exist.

• The availability of product or service substitution empowers users more than the providers.

Thus, substitutes provide stable market environment for competition to thrive.

Learn more about how substitute products or services affect market competition at https://brainly.com/question/24512423