As a transit planner, your job is to predict ridership and total fare revenue. Suppose the short-run elasticity of demand for commuter rail (over a one-month period) is 0.60, and the long-run elasticity (over a two-year period) is 1.60. The current ridership is 100,000 people per day. Suppose the transit authority decides to increase its fares from $2.00 to $220.
a. Predict the changes in train ridership over a one-month period (the short run) and a two-year period (the long run).
b. Over the one-month period, will total fare revenue increase or decrease? What about the two-year period?