Economics of New York City

I've just returned from a little vacation to New York City to visit my brother. If you've ever visited the city, you'll know that prices of most goods and services are a bit higher than what you'd pay in Marietta. You'd also be amazed at the variety of markets that cater to every possible consumer preference. While we have yet to develop a formal theory of prices (that's part II of the course), the notion of relative scarcity can go a long way to explain the high prices.

This article describes the economics of operating a variety of businesses in NYC. One industry that surpises a lot of people is the taxi cab market. You'd think it would be pretty easy to get into the business...after all, all you need is a car, right? Wrong. The number of taxi cabs is artificially limited by the city government to around 13,000. Each cab owner must possess a license (called a medallion) to operate the cab. Given the restriction on the number available, the market price of a medallion hovers around $240,000. How's that for an entry barrier?

By the way, why do you suppose the city government artificially limits the number of medallions? Why not simply open the city up to free and unfettered competition?

While in NYC, I also ate $4 hot dogs at Yankee Stadium, got propositioned by a hooker while looking for a cab with my wife and daughter, and stood three feet away from someone called Rihanna while she signed her latest CD for my daughter (pictured in the foreground looking to her right in the previous photo).