Chapter 91 Question 082

Why should the taxi fare be divided into two parts, with both a fixed starting price and a variable mileage price, instead of directly charging a higher mileage price? (Mario Caporic) According to the 2006 New York Taxi Regulations, the starting price of a taxi is two.Five dollars, plus forty cents for every one-fifty mile driven, plus another forty cents for every two minutes you stop and wait during the drive.Major cities around the world have similar toll regulations.Why didn't the management committee adopt a seemingly simpler approach, cancel the starting price, and directly charge higher mileage fees and waiting time fees?

Since taxis use electronic odometers for billing, there is no difference in difficulty whether it is the current charging method or the charging method that only calculates the mileage.With the current fee structure, then, a more plausible explanation would be that it's more efficient than just charging by the mile.To remain in charge, taxi owners must account for all costs.Some costs are roughly proportional to mileage (such as fuel, maintenance, vehicle depreciation, etc.), but some costs are not.For example, the opportunity cost of investing in a taxi is the same no matter how far the taxi travels, as is the cost of insurance.Also, in cities where taxis are required to purchase a license to operate, the market price of the license is also a fixed cost. (A taxi operating license in New York now sells for more than $300,000.)

The most effective taxi fare structure should allow consumers to decide whether to take a taxi based on the additional cost to the driver due to their own use of the car as much as possible.If taxis were to cover all their costs solely by charging mileage, the mileage fee per mile would probably be several dollars.This would dissuade many consumers who travel long distances from taking taxis even though the actual additional cost of serving them may be less than what they are willing to pay. A fare structure with both fixed and variable components is closer to the actual cost structure of most taxis.This fare structure reduces mileage charges for taxis, and passengers don't have to pay more than they actually cost for longer trips.In this way, as long as the benefits of taking longer miles in taxis are greater than what they pay, passengers will be willing to do so.