In many large cities you can now use your cell phone to call Uber or Lyft instead of hailing a taxi. Would you expect this to affect the prices of taxi medallions (that is really the supply of taxis)? Why or why not? Talk about supply and demand curves in your answer. Make sure you can draw them!
In large cities where many people are using Lyft and Uber instead of taxis, the price of a taxi ride would have to go down. If you look at the supply and demand curve below, the quantity of taxis does not change, so the supply curve (S) does not move. The demand curve for taxis before Lyft and Uber is showed as line D1. As the demand for a taxi changes, so the demand curve shifts to the left shown as line D2. When that happens, the equilibrium price of a ride in a taxi goes down.
Can you think of an example where you watched the supply of a good or service change rapidly? (For example, a new hotel or restaurant opened.) Based on the chapter what would you expect to see happen? Why?
When a new restaurant opens, there is an influx of people who want to try the new restaurant, instead of eating at the same ones they always have. This does not change the demand for restaurants, just the supply. As seen in the graph below, the demand curve (D) does not move, but the original supply curve (S1) moves to the right, creating a new supply curve (S2). This is because there are now more choices for a restaurant. As you can see on the graph, when demand stays the same and supply is increased, the equilibrium price goes down.
Give another example of a concept from this chapter. For example I used AirBnB to rent an apartment in San Francisco a few years ago. How did AirBnB affect the supply of short term room rentals in San Francisco? How about the supply of long term rentals?
AirBnB affected room rentals in San Francisco by lowering the demand for them. As seen in the 1st graph, when the supply does not change, but the demand goes down, the equilibrium price must go down.
AirBnB affected long term rentals by lowering the supply. The supply curve shifts to the left, but the demand curve does not change. This makes the equilibrium price go up. I have seen this happen a lot living in Eagle County. Not only has it affected the long term rental market, but it has affected first time home buyers as well. Through my work in real estate and property management, I have seen many homes go on the market on the lower end of what is offered up here. These would normally be in the price range of what first time home buyers would be looking for. Many times, I have seen investors come in and purchase the homes, only to turn around and have them be short term rentals on sites like AirBnB.
My Journey into Macroeconomics 