ILP

Taxi woes

Background
December 2007 49% increase in taxi fares ComfortDelgro, the flag down fare by 10 cents and the peak period surcharge by $1. Trips < 10 kilometres 10 cents for every 210 m travelled, vs. 225 m previously While trips 10 kilometres is now 10 cents per 175 m vs 200 m before the fare hike.

Question a)
Using demand and Supply Concepts, explain the economic basis for the taxi woes experienced by commuters in Singapore

Note: taxi woes here refer to the woes BEFORE the hike

The taxi woes

Fruitless attempts to get taxis at certain times and locations Errant cabbies who only responds to phone bookings and hotel touting unable to get cabs near midnight

Reasons for the Taxi Woes

Unequal distribution of taxis
Extremely high demand of taxis during peak hours The Midnight charge

 Before the hike, there has been a large demand for taxis in certain areas. eg: Changi Airport and hotels.

But with supply of taxi and price remaining constant, a shortage occurs certain factors that contribute to one of the taxi woes unequal distribution of taxis.

Unequal distribution of taxis

Taxi drivers rush to central areas so that they can earn more. BECAUSE commuters there take a longer route compared to those in other areas MORE $$ destinations of many of these customers have a high demand for taxis. Eg: from the hotel to the airport or vice versa.

BUT
This has led to a lack of taxis in other areas Taxi drivers would rather circle around the CBD than around Tuas or Toa Payoh due to a higher chance of picking up customers shortage of cabs in the outer areas.

The midnight charge

Singapore is a global city with many people working and partying late into the night. Restaurants and places for entertainment operate for longer hours.

a huge demand for taxis at later period of the day, mostly just before midnight

The midnight charge

As there is a surcharge after midnight, it had led to many drivers only picking up passengers after midnight MORE $$. Many have hidden from the roads, waiting for the clock to strike midnight before reappearing.

many passengers are unable to get taxis before midnight

The midnight charge

Though there price of taxi fares increase after midnight, the demand for taxis will not decrease.

In fact, it might increase after midnight there is no more bus and MRT services after midnight.
Commuters have no choice but to take taxis despite the midnight charge.

Demand and supply graph after midnight

Price
SS
DD1 DD2

Quantity of taxis supplied

Touting of customers
There was a large increase in demand for taxis. But with the price remaining the same, many taxi drivers have had to resort to touting so as to earn more $$

Touting of customers
Touting means charging commuters exorbitant prices for the taxi ride, which in many cases is far higher price than what the actual price of the ride should really have been. These cases of touting often happen to foreigners.

Touting of customers
Drivers approach foreigners and asking them whether they need to go somewhere, then charge them outrageous prices many times above the standard price. However, as these tourists are ignorant of the prices of taxi rides, they usually agree and eventually get cheated of their money by these cons.

Touting of customers
As foreigners are new to the country, they are ignorant of the system of taxi charging.

With more foreigners coming to Singapore each year, more foreigners are prone to be cheated.

b) Using relevant demand elasticity concept, discuss the IMPACT of the recent fare hikes on taxi drivers. taxi commuters.

Before Fare Hike

Taxi was considered a luxury good to some, a normal good to others Before the fare hike, people who took taxis belonged to the middle class People in the higher class often owned their own vehicles

 People in the lower class viewed taxis as luxury goods More view taxis as luxury goods Decrease in the demand for taxis

After Fare Hike

For some commuters, the proportion of their income which is used on taxi fares after the hike is still quite low

Thus, increase in taxi fares will result in a less than proportionate decrease in demand.

Availability of Substitutes
Substitutes for taxis are readily available These substitutes include
personal vehicles cheaper alternative that comes in the form of buses or trains

Impact of Fare Hike Middle Class 1. Consider switching to personal vehicles

2. Switch to public transport as they consider taxis a luxury good 3. Take taxis as it would be a normal good

Impact of Fare Hike Lower Class Number of taxi rides would definitely decrease greatly
As the hike take up a significant part of their income

Impact of Fare Hike Taxi as a Necessity 1. Disabled and the elderly

unable to own and drive a vehicle taking public transport is unfeasible

2. Must take Taxis

public transport takes a long time cannot afford a personal vehicle increase in the taxi fares will not deter them from taking taxis

General Impact of Fare Hike

Number of commuters who take taxis has decreased
Waiting times for cabs have decreased substantially, especially during peak hours
Commuters in the city only have to wait for up to 6 minutes for a cab, significantly less than the 5 to 22 minutes before the fare hike Waiting times at the Suntec City taxi stands have been drastically cut from 22 minutes to 4 minutes

Impact on Taxi Drivers

Revenue of taxi drivers have still increased
Cabbies are pocketing about $11 more a day As taxis are price inelastic, and the increase in price has led to a less than proportionate decrease in demand

Evaluation
Price is now closer to the equilibrium price Quantity demanded and quantity supplied are now about the same No shortage or surplus Shortage of taxis has definitely decreased
Seen from the shorter waiting times

Graph
Price
SS

DD

Quantity

Evaluation
Increase in taxi fares is recent Commuters still cannot decide between taking taxis or substitutes like public transport

Need more time

Adjust their consumption patterns Find alternatives before deciding whether to spend the extra money on taxis or just buy a vehicle of their own

Evaluation
Current statistics may not reflect the true situation People taking taxis might increase or decrease in the future In the long run
Singapore may get more prosperous Taxis may become normal goods Demand for taxis may increase

Evaluation
As can be seen from current statistics, taxis are price inelastic.
An increase in price results in a less than proportionate decrease in demand. The revenue after the fare hike is shown by the red rectangle.

Evaluation
The old one is shown by the blue triangle. As can be seen, there is an increase in the drivers revenue.

Price

Quantity

Thank you!!!