Help with an Economics question?

J

jackie s

New member
You are the manager of the public transit system. Your finance officer has just advised you that the system faces a deficit. Your board doesn’t want you to cut service, which means that you can’t cut costs. Your only hope is to increase revenue. You wonder whether a fare increase would boost revenue. You consult the economist on your staff who has researched studies on public transportation elasticities. She reports that the estimated price elasticity of demand for the first few months after a price change is about –0.5, but that after two years, it will be about –1.5.

Explain why the estimated values for price elasticity of demand differ.

How would you compute changes in quantity demanded given different fare raises?

Thanks!
 
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