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  • Relationship Between Taxi Fares and Public Transport A Rise Conv

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    Win Htet Soe
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    A rise in taxi fares is likely to increase demand for public transport through several effects: substitution effect, as consumers switch to cheaper alternatives; complementary goods effect, as taxis and public transit are often used together but higher taxi prices induce consumers to use more public transit; and income effect, as consumers perceive less purchasing power so choose cheaper options like buses. Private taxis and public transit demonstrate a complex relationship, acting as both complements when used together but also substitutes when taxi prices rise substantially, showing how consumer choices adapt to changing market conditions.

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    A rise in taxi fares is likely to increase demand for public transport through several effects: substitution effect, as consumers switch to cheaper alternatives; complementary goods effect, as taxis and public transit are often used together but higher taxi prices induce consumers to use more public transit; and income effect, as consumers perceive less purchasing power so choose cheaper options like buses. Private taxis and public transit demonstrate a complex relationship, acting as both complements when used together but also substitutes when taxi prices rise substantially, showing how consumer choices adapt to changing market conditions.

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    © All Rights Reserved
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    8 views1 page

    Relationship Between Taxi Fares and Public Transport A Rise Conv

    Uploaded by

    Win Htet Soe
    A rise in taxi fares is likely to increase demand for public transport through several effects: substitution effect, as consumers switch to cheaper alternatives; complementary goods effect, as taxis and public transit are often used together but higher taxi prices induce consumers to use more public transit; and income effect, as consumers perceive less purchasing power so choose cheaper options like buses. Private taxis and public transit demonstrate a complex relationship, acting as both complements when used together but also substitutes when taxi prices rise substantially, showing how consumer choices adapt to changing market conditions.

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    © All Rights Reserved
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    Relationship between Taxi Fares and Public Transport

    A rise in the price of taxi fares is likely to have several implications for the market
    demand for public transport:

    a. Substitution Effect: When the price of a substitute good, in this case, private
    taxis, increases, consumers tend to shift their preference toward the alternative,
    which is public transport. This results in an increase in the demand for public
    transport. This phenomenon is known as the substitution effect.

    b. Complementary Goods: Private taxis and public transport can also be considered
    complementary goods because they are often used together, such as when someone
    takes a taxi to reach a bus station. However, they can become substitutes when the
    price of one (taxis) rises significantly, leading consumers to use more of the other
    (public transport) as a cost-saving measure.

    c. Price Elasticity of Demand: The extent to which the demand for public transport
    increases in response to the price increase of taxi fares depends on the price
    elasticity of demand for both services. If public transport is considered a relatively
    more elastic product (i.e., consumers are highly responsive to price changes), the
    increase in demand for it could be more pronounced in response to a taxi fare hike.

    d. Income Effect: Additionally, the income effect might play a role. If consumers'
    incomes remain constant and taxi fares rise, they may perceive a reduction in their
    purchasing power. This could lead them to seek more cost-effective transportation
    options like buses, further boosting the demand for public transport.

    In terms of the relationship between private taxis and public transport:

    Complementary and Substitute Goods: Private taxis and public transport


    demonstrate a complex relationship within the market. They are complementary
    goods when consumers use them together for convenience or specific situations.
    However, when the price of one rises substantially (private taxis), they transform into
    substitutes as consumers opt for the other (public transport) to save on
    transportation costs. This dynamic showcases the versatility of consumer choices and
    their adaptability in response to changing market conditions.

    In conclusion, as the price of taxi fares increases, we can expect an upward shift in
    the demand for public transport (bus rides) due to the substitution effect, which
    highlights how consumers respond to price changes within a market context.

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