Gas Prices and Public Transit Ridership. Consider the effect of higher gasoline
ID: 1191524 • Letter: G
Question
Gas Prices and Public Transit Ridership. Consider the effect of higher gasoline prices on public transit ridership. The initial price of public transit is $2.00 per ride and the initial ridership is 140,000 people per day. Suppose the elasticity of transit ridership with respect to the price of gasoline is +0.600 and the price of gasoline increases by 25 percent. Assume the price of public transit remains at $2.00. The new level of ridership is (Enter your response as an integer.) The price elasticity of demand for transit ridership is -0.40. Suppose the transit authority matches the increase in the price of gasoline, increasing the transit fare by 10 percent. Assume ridership is at the initial level of 140,000. The new level of ridership only considering the transit fare increase would be (Enter your response as an integer.) The combined effect of the two changes would result in a ridership level of (Enter your response as an integer.)Explanation / Answer
a. Increase in ridership = 0.600*25% = 15%
The new level of ridership is = 140,000 *(1+ 0.15)
= 161,000
b. Decrease in ridership = -0.40*10% = -4%
The new level of ridership is = 140,000 *(1- 0.04)
= 134,400
c.
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