You are an economist for the City Subway Commission. Presently, the price of a subway ride is 80¢, and 250,000 seats are filled weekly. The price elasticity of demand for subway rides is -0.40, and the income elasticity of demand is -0.60

a) If a recession lowered area incomes by 5%, how many additional seats per week would the subway need?

b) The Commission has just approved a subway price increase of 10¢ per ride. As a result, will the Commission’s total revenue from subway rides rise or fall?

Answer rating: 100% (QA)

a Since the income elasticity of demand is 060 Lowering the income by 5 wi... View the full answer