The emergence of ride-sharing apps like Uber have created gains from trade by:

• A. reducing transaction costs and matching drivers with riders more efficiently
• B. increasing the price of traditional taxi services
• C. decreasing the overall supply of transportation options
• D. eliminating all competition in the transportation market

Answer: (A)

Verified step by step guidance

1. Understand the concept of gains from trade: Gains from trade occur when parties can exchange goods or services in a way that makes both better off, often by reducing costs or increasing efficiency.
2. Identify what transaction costs are: Transaction costs include the time, effort, and resources spent to find a trading partner and complete a trade. Lower transaction costs facilitate more trades and improve market efficiency.
3. Analyze how ride-sharing apps affect transaction costs: These apps use technology to quickly match drivers with riders, reducing the time and effort needed to find a ride, which lowers transaction costs significantly.
4. Consider the impact on supply and competition: Ride-sharing apps typically increase the supply of transportation options and introduce more competition, rather than decreasing supply or eliminating competition.
5. Conclude that the main source of gains from trade here is the reduction in transaction costs and improved matching efficiency, which benefits both drivers and riders.