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Analyzing the Impact of Quota Systems on NYC Taxi Medallions and Ride Markets

This analysis explores the implications of quota systems by examining the NYC taxi medallion regulations from the 1930s to today. The quota of taxi licenses has increased from 11,787 to over 13,000 by 2014, significantly affecting market dynamics. With a demand price of $6.00 and a supply price of $4.00, the quota creates a “wedge” causing deadweight loss, as potential transactions are lost due to the restrictions. This study illustrates how quotas can lead to inefficiencies in markets by limiting supply and generating missed opportunities.

tallulah-alston
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Analyzing the Impact of Quota Systems on NYC Taxi Medallions and Ride Markets

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Presentation Transcript

  1. Quantity Controls:Quotas Students will analyze the implications of a quota system in the real world to demonstrate understanding of a quota

  2. NYC Taxi Medallion • 1930s = 11,787 • 2014 = 13,257 • Issued for a fee of $10.00 per license • Today, these medallions are sold for upwards of $10,000.00 per license • Quota system: gov’t regulation of quantity

  3. Market for Taxi Rides in NYC • Demand Price: the price at which consumers want to buy a given quantity ($5.00) • Supply Price: the price at which producers will supply a given quantity ($5.00)

  4. NYC Taxi Ride Market w/ Quote • Consumers willing to pay $6.00 per ride • Suppliers willing to accept $4.00 per ride • HUGE impact on the market for taxi rides!

  5. Quotas Effects—Deadweight Loss • Graph shows us 2 transactions: • 1) Taxi Rides ($4.00 and $6.00) • 2) Medallions (the “wedge”) • The “wedge” is the quota rent—range between demand price and supply price that gives us the value/rent of the license (medallion) per transaction

  6. Quotas Effects—Deadweight Loss(cont.) • Deadweight Loss: missed opportunities from not operating at equilibrium due to intervention • Rule: when demand price exceeds supply price there will be deadweight loss • Missed gains experienced by buyers and sellers D.L. = 1/2B×H

  7. Quick Note • Just like price floors and ceilings quotas can be ineffective when the quota (quantity control) they impose is greater than equilibrium • Quota>E.Q. = ineffective • Price floor>E.P. = ineffective

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