Answer to Question #33418 in Microeconomics for andres

Question

The MBTA runs a chronic deficit. Recent attempts to close the budget shortfall have included
fare hikes. What must be true of price elasticity of demand for MBTA service in order for fare
hikes to actually reduce its operating deficit?

Answer 1

Deficit reduction in the United States refers to taxation, spending, and economic policy debates and proposals designed to
reduce the Federal budget deficit. Government agencies including the Government
Accountability Office (GAO), Congressional Budget Office, the Office of
Management and Budget (OMB) and the U.S. Treasury Department have reported that
the federal government is facing a series of important financing challenges. In
the short-run, tax revenues have declined significantly due to a severe
recession and tax policy choices, while expenditures have expanded for wars,
unemployment insurance and other safety net spending. In the long-run,
expenditures related to healthcare programs such as Medicare and Medicaid are
projected to grow faster than the economy overall as the population matures