(Transcript of audio with descriptions. Transcript includes narrator headings and description headings of the visual content)
(Speaker)
In this problem we're going to analyze the demand for New York taxi rides before and after Uber enters the market.
(Description)
The accompanying diagram shows the demand and supply curves for taxi rides in New York City. On the Figure there are graphs of supply and demand. Horizontal axis corresponds to quantity of taxi rides (in millions miles). Vertical axis corresponds to price (in dollars per mile). Two straight lines are plotted in the first quadrant with a negative slope demand line passing through points with coordinates (0,5) and (1200,0), and positive slope supply line passing through (0, 0.5). Lines intersect at point E1 (600, 2.5). At E1 the market is at equilibrium with 600 million miles of rides transacted at an equilibrium price of 2.50 dollars. Calculate consumer surplus, producer surplus, and total surplus at E1.
(Speaker)
We are going to start by first looking at supply and demand before Uber enters the market. In part A, we are asked to measure consumer, producer, and total surplus, when the equilibrium price is two dollars and fifty cents per mile, and six million miles of rides are purchased. We are going to start by calculating consumer surplus. In this problem consumer surplus is the area above the price of two dollars and fifty cents per mile and below the demand curve. For this problem we have highlighted consumer surplus in yellow. The next step is to calculate consumer surplus which is the area of the yellow shaded triangle. To do so we use the formula of a triangle which is one-half times the parenthesis five dollars minus 2 dollars and fifty cents times 600 million. Doing so, we find the consumer surplus is 750 million dollars.
(Description)
On the Figure there are graphs of supply and demand. Two straight lines are plotted in the first quadrant with a negative slope demand line passing through points with coordinates (0,5) and (1200,0), and positive slope supply line passing through (0, 0.5). Lines intersect at point E1 (600, 2.5). Area above the price 2.5 dollars per mile and below the demand curve is shaded and labeled "Consumer surplus". Consumer surplus equals one-half times (5 dollars minus 2.5 dollars) times 600 million, equals 750 million dollars.
(Speaker)
The next step is to find the producer surplus. Again we will start with our original demand and supply diagram with an equilibrium price of two dollars and fifty cents per mile and the quantity of six hundred million miles of taxi rides. Remember, that producer's surplus is the difference between the price received by the taxi driver and the supply curve. In the graph it is the area below the price of two dollars and fifty cents per mile and above the supply curve. For this problem, we have highlighted producer surplus in yellow. Similar to the calculation of consumer surplus, producer surplus is the area of the yellow shaded triangle. To do so, we use the formula of a triangle which is one-half times the parenthesis two dollars and fifty cents minus fifty cents times 600 million. Doing so we find the producer surplus is 600 million dollars.
(Description)
On the Figure there are graphs of supply and demand. Two straight lines are plotted in the first quadrant with a negative slope demand line passing through points with coordinates (0,5) and (1200,0), and positive slope supply line passing through (0, 0.5). Lines intersect at point E1 (600, 2.5). Area below the price 2.5 dollars per mile and above the supply curve is shaded and labeled "Producer surplus". Producer surplus equals one-half times (2.5 dollars minus 0.5 dollars) times 600 million, equals 600 million dollars.
(Speaker)
Finally, we are going to calculate the total surplus in the market for New York taxi rides. We will start with our original supply and demand diagram. Total surplus is the sum of both consumer and producer surplus. We have highlighted total surplus in yellow to help visualize total surplus. Total surplus is the sum of consumer and producer surplus which from before we know is 750 million dollars plus 600 million dollars for a total surplus of 1350 million dollars.
(Description)
On the Figure there are graphs of supply and demand. Two straight lines are plotted in the first quadrant with a negative slope demand line passing through points with coordinates (0,5) and (1200,0), and positive slope supply line passing through (0, 0.5). Lines intersect at point E1 (600, 2.5). Area of the triangle consisting of two areas consumer surplus and producer surplus is shaded and labeled "Total surplus". Total surplus equals 750 million dollars plus 600 million dollars, equals 1350 million dollars.