Answer to Question #16909 in Microeconomics for capitalboy

Question

The subway fare in your town has just been increased from a current level of 50
cents to $1.00 per ride. As a result, the transit authority notes a decline in ridership of 30 percent.
a. Compute the price elasticity of demand for subway rides.
b. If the transit authority reduces the fare back to 50 cents, what impact would
you expect on the ridership? Why?

Answer 1

a. Ed = change Q/change P = 0,3/2 = 0,15
So the demand for subway rides is inelastic
b. If the transit authority reduces the fare back to 50 cents, there will be an increase in ridership of 30 percent, so the will not be the significant change of demand.