17. In 2009, the US Postal Service increased first-class postage rates from 42 c

Question

17. In 2009, the US Postal Service increased first-class postage rates from 42 cents to 44 cents. The service had been losing money. One of the reasons is increased competition from companies such as United Parcel Service and Federal Express. Another reason is the use of faxes and e-mail, as well as electronic bill payment. With this decrease in demand for postal services, why do you think the Postal Service is seeking a rate increase?
please consider short-run and long-run demand elasticities for USPS services.

Explanation / Answer

USPS is subsidized by the government. (their services are always losing money) so USPS is trying to recoup their losses due to lack of demand by increasing their fare in hope of recouping some or all of their losses back) (because other wise their losses will be greater than government subsisdies) it is simply trying to stay solvent so it has enough money to pay workers and other expenses.

Short run elastictisties=no one is going to suddenly stop using USPS because they increase their first class by 2 pennies (because if you need to mail something, you still have to do it) no one else is going to deliver your letter for a mere 44 cents) from one place to another.

Long run elasticities= it will lead to lower and lower demand as consumers adjust to paying bills online, sending greeting cards online simply because it is cheaper and more convenient.

So essentially, raising rates on postage is going to lead to less demand in the future

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