A local taxi-owner's union is meeting to decide whether to raise the minimum ride price from $5 to $6. This price is the flat rate any rider pays who travels less than 2 miles. An economist at the meeting tells the group that studies have shown that short-trip rides have an elastic demand. What will happen to taxi revenues if the increase in the price floor is adopted and why? (the explanation is what counts here).
Because short-rides are elastic in demand the taxi drives risk losing profit by raising the minimum price that they charge (The floor price). Elasticity of demand is the percentage change in quantity demanded due to price. If the elasticity is high people will likely be willing to stop using taxis for short-trips. Customers would prefer finding other ways to get to close by locations.