Question #2 (externalities)

Please review and use the materials provided in the Harvard Case Study Readings for The Quest for Sustainable Public Transit Funding: SEPTAs 2013 Capital Budget Crisis. This paper provides sufficient data in Exhibits 8 and 9 to answer the Total Revenue, Subsidy and Elasticity Questions. Exhibits 5 and 6 offer insight into the demographic information. This is an analytic question that uses math for a decision making process.

Also, the elasticity equation you will need to use is:

Price Elasticity of Demand = (P/Q)times(Change in Q/Change in P)

You are provided different elasticity scenarios offered (based on price increases of between 5% and 20%)

a. How much is the initial Government Operating Subsidy? How much is the States Operating Subsidy? (4 Points)

b. When reviewing Exhibits 5 and 6, what data stands out as the population that is more likely to use Public Transportation? (2 Points)

c. Would Total Revenue increase or decrease if the per ride fares were increased by 10% or 15% and how much will they go up (this requires a numeric answer and you must show your work)? (9 Points)

d. According to this analysis, can fare increases eliminate the States Operating Subsidy and why? (2 Points)

e. What are the implications on fairness that these increases create? (3 points)