Charge Increases Taxi Fares, Reducing Passenger Demand

Steps:

• City imposes charge on diesel taxis entering, raising operating costs for providers.
• Taxi operators pass on costs by increasing fares for journeys into the city.
• Higher fares reduce passengers' willingness to use taxis, shifting demand curve left.
• Number of available taxis unchanged, so supply curve stays the same.

Why A is correct:

• Demand falls as higher fares lower willingness to pay (law of demand: price up, quantity demanded down, but here interpreted as demand shift due to perceived cost increase).

Why the others are wrong:

• B: Supply unchanged, as charge doesn't reduce taxi availability directly.
• C: Demand falls due to fare hikes affecting passenger behavior.
• D: Demand falls, not rises, from increased costs.

Final answer: A