Fares, Queues and the Windhoek Taxi Rank
Windhoek, Namibia. The local minibus-taxi association last raised its flat fare 18 months ago, from N$12 to N$14 per trip. Since then diesel and petrol prices have risen by about 18%, insurance premiums by 9%, and two operators have left the route after failing to replace vehicles. At the N$14 fare, a survey estimates that commuters want 9,500 trips a day, but operators are willing and able to supply only 7,000. Average waiting time at the main rank has risen from 10 to 25 minutes, and inspectors report that some drivers carry five passengers in a row designed for four. The association proposes raising the fare to N$17. Its own survey suggests that at N$17, demand would fall to 8,000 trips a day and supply would rise to 8,600. The transport regulator must approve any fare change and is worried about low-income commuters, who make up most passengers. The association argues that without a rise, more operators will exit.
1. Using demand and supply, explain the situation at N$14 and calculate the shortage. Why is this not an equilibrium?
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At N$14, quantity demanded is 9,500 trips a day and quantity supplied is 7,000, so there is excess demand of 2,500 trips a day. The fare is below the market-clearing level. Costs have shifted the supply curve left: fuel, insurance and vehicle replacement costs have risen, and two operators have left. Demand has not fallen enough to match that lower supply at the controlled fare.
This is not an equilibrium because planned purchases exceed planned sales. The quantity actually traded is 7,000, not 9,500; the extra 2,500 is notional demand that cannot be met. In a free market the fare would be bid up until the quantities were equal. Because the fare is fixed, adjustment happens through non-price rationing: queues lengthen, passengers wait 25 minutes instead of 10, drivers overload vehicles, and informal pick-ups appear. These are symptoms of a shortage, not evidence that demand has disappeared. The upward pressure on the fare remains until supply expands or demand falls.
2. Assess whether N$17 will remove the shortage. Use the figures and consider elasticity and equity.
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At N$17, demand is 8,000 and supply is 8,600, so there would be a surplus of 600 trips a day. The market-clearing fare is therefore below N$17, somewhere between N$14 and N$17. Approving N$17 would overshoot: operators would wait for passengers, some would cut trips, and the surplus would not be a stable equilibrium. The association's figures suggest a fare nearer N$16 would clear the market, although supply responses are uncertain.
Elasticity matters for who bears the burden. Using quantity demanded, a rise from N$14 to N$17 is 21.4%, while demand falls from 9,500 to 8,000, or 15.8%. Price elasticity is about -0.74, inelastic. Commuters therefore bear most of the fare increase. Operators' revenue at N$14 is 7,000 × N$14 = N$98,000 a day; at N$17 with 8,000 trips it is N$136,000, but part of that rise comes from extra supply, not just the higher fare.
Equity is a separate judgement. Low-income commuters have few substitutes, so their demand is inelastic, but that does not mean they can afford the rise. A smaller increase, combined with better enforcement against overloading, is more defensible than N$17.
3. The regulator considers a targeted subsidy for low-income commuters instead of approving N$17. Evaluate this alternative.
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A subsidy could take two forms. A fare subsidy paid to operators would lower the effective price for passengers, but it would increase quantity demanded at a time when supply is already short. If the fare stays at N$14 and the subsidy does not expand supply, the 2,500-trip shortage could worsen. A supply-side subsidy, such as a fuel rebate or a grant to replace vehicles, would shift supply right and reduce the shortage more directly.
The cost and targeting matter. A universal fare subsidy is expensive because it pays for trips that would have happened anyway. Vouchers or a registered low-income card are better targeted but cost money to administer and may exclude informal workers. The subsidy also has an opportunity cost: money spent here cannot be spent on clinics or schools.
The judgement is that a subsidy is justified only if it is linked to measurable service improvements, such as more vehicles, shorter queues and no overloading. Otherwise it protects passengers from the fare but leaves the underlying shortage in place. A combined policy-moderate fare rise plus targeted support and enforcement-is more coherent than either policy alone.