Question

Assume that the local government in Smithville reduces the level of government regulations on the local taxi cab market. Taxis are no longer required to carry certain safety equipment, drivers no longer need special drivers licenses, etc. How will the market for taxi cab rides be impacted?

Answer 1

Answer: Supply will increase and the equilibrium price will decrease.

The influx of taxi drivers will significantly increase because there's no longer regulation that will prevent people from becoming taxi drivers. This will make supply exceed demand thereby the equilibrium price of taxi fare will decrease.