Economics case study

James and Fred are work colleagues who live in the same suburb. James normally drives himself to work. Fred, who can’t drive, hires an Uber for $10 to get to and from work (there is no public transport near him). Fred discovers that James drives past his house each day on his way to work. Fred asks James if he can get a lift with him each day. Both James and Fred are rational self-interested people. James contemplates haggling over how much Fred should pay him.

What price, if any, will they eventually agree on? Explain your answer.

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