A citys transit authority increases the price of subway and bus tickets from $1.25 to $1.50. If the demand for these tickets is price inelastic, 1) the # of people riding buses & subways AND 2) the citys revenues will change in which way (respectively)?

ELASTICITY OF DEMAND

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

A city’s transit authority increases the price of subway and bus tickets from $1.25 to $1.50. If the demand for these tickets is price inelastic, 1) the # of people riding buses & subways AND 2) the city’s revenues will change in which way (respectively)?

A	Increase; 2)Increase
B	Decrease; 2) Increase
C	Decrease; 2) Decrease
D	No Change; 2) Increase

Explanation:

Detailed explanation-1: -Demand is unit elastic when a change in price causes a proportional change in quantity demanded. To measure the elasticity of demand, compare the percentage change in quantity demanded to the percentage change in price.

Detailed explanation-2: -An inelastic demand is one in which the change in quantity demanded due to a change in price is small. If the formula creates an absolute value greater than 1, the demand is elastic. In other words, quantity changes faster than price.

Detailed explanation-3: -Which of the following occurs as a result of the substitution effect of an increase in the price of a normal good? The quantity demanded of the good decreases.

Detailed explanation-4: -Demand for a good will tend to be more elastic if the good has a many substitutes, because many substitutes have more elasticity. Was this answer helpful?

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ECONOMICS (CBSE/UGC NET)

ECONOMICS

ELASTICITY OF DEMAND