# Answer to Question #16909 in Microeconomics for capitalboy

Question #16909

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?

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?

Expert's answer

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.

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.

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## Comments

Assignment Expert25.10.12, 14:26Price of ride has doubled, so the denominator equals 2

oumar25.10.12, 11:08Where the denominator 2 come from?

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