What is the effect on the equlibrium price of limousine and taxi services in Toronto if there is a SARS outbreak there?
The effect of this SARS outbreak in Toronto will be to reduce the equilibrium price for limousines and taxis in that city. This will happen because the demand for those services will decrease.
If there is an outbreak of disease in Toronto, people will stop coming to the city if they have a choice. This will reduce the number of visitors to the city. Visitors are the ones who are most likely to use taxi and limousine services. Therefore, the demand for such services will drop.
When demand goes down, the demand curve moves to the left. This results (all other things being equal) in a new equilibrium price that is lower than the old price was.
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