This [unedited] guest post is by a student in my EEP100 class (background post).
Please praise/critique/comment on its economic quality and importance to you.
Candace Au-Yeung says:Two years ago, the Hong Kong taxi starting rate was $16 for the first 2 kilometers with an additional increase of $1.40 for every 0.2 km or 1 minute waiting time. Now, the starting rate is $18 for the first 2 kilometers with an additional increase of $1.50 for every 0.2 km or 1 minute waiting time. However, once the meter reaches $80, the fare only increases by $1 instead of $1.50. Why this change in taxi price policy?
This is a basic supply and demand model. Since the starting prices have increased, from $16 to $18, the quantity demanded (movement along the demand curve) has decreased. Two years ago, majority of the people in Hong Kong would only take the taxi for a quick 15 minute ride because long rides would be too expensive and alternative public transportation would be more attractive. Now with this increase in price, the consumer surplus decreases; therefore, more people are less willing to take a cab for short rides. Consumer surplus is the difference between what consumers are willing to pay and what they actually pay. For example, if I am only willing to pay $30 to get home, anything under or equal to $30 would result in excess consumer surplus. However, anything over $30 would decrease my utility. While it only cost me $28.6 to get home before, under the new system, it would cost me $31.5. This shows that I am now less willing to take a cab home because $31.5 is greater than $30.
A possible reason for this change in policy is to discourage people from taking short-haul cab rides since it is now much more expensive. On the other hand, there is now an incentive for people to travel longer distances in taxis because after $80, the jump in prices is 33% cheaper.
Bottom line: The new taxi price policy in Hong Kong is to discourage people from taking short taxi rides and encourage people to take longer taxi rides.
2 comments:
I suspect there is something else going with the price increases. The prices are usually set by the regulator, and I am skeptical that the aim is to reduce short-haul taxi trips. It's probably an inflation/cost of living adjustment or something.
I also think it's more of a push for decline the busy traffic and environment friendly law. The uses of this I think it's to push people for substitute transportation such as the regular bus, two-floor bus, underground train, and the cheap tram whose have bigger capacity space. Hong Kong is very pollunted, at least as of I know, and maybe with this it will also help produce less CO2 and encourage a easier traffic by having less car on the street with less demand.
As for the cheaper price for longer distance, I think it is just used to push those people who travel in short distance to take those substitute transportation instead.
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