In Pioneer ville the price elasticity of demand fro bus ridersis .5, the income

Question

In Pioneer ville the price elasticity of demand fro bus ridersis .5, the income elasticity of demand fro bus riders is -0.1 andthe cross elasticity of demand fro bus riders with respect togasoline 0.2 a)is the demand for bus riders elastic or inelasticwithrespect to the price of a bus ride? why b) would an increase in bus fare increase the bus company toalrevenue ? c) Describe the relationship between bus riders andgasoline d) if teh price of gasoline increases by 10% with no changeinthe price of a bus ride how will the number of bus rideschange e)In pioneer ville, is a bus ride a normal good or inferiorgood f) In Pioneer ville are bus rides and gasoline sustitutes orcomplements ? In Pioneer ville the price elasticity of demand fro bus ridersis .5, the income elasticity of demand fro bus riders is -0.1 andthe cross elasticity of demand fro bus riders with respect togasoline 0.2 a)is the demand for bus riders elastic or inelasticwithrespect to the price of a bus ride? why b) would an increase in bus fare increase the bus company toalrevenue ? c) Describe the relationship between bus riders andgasoline d) if teh price of gasoline increases by 10% with no changeinthe price of a bus ride how will the number of bus rideschange e)In pioneer ville, is a bus ride a normal good or inferiorgood f) In Pioneer ville are bus rides and gasoline sustitutes orcomplements ?

Explanation / Answer

a) Elasticity = % chg in quantity / % chg in price The demand for bus riders is elastic, since a 1% increase in pricefor the bus ride results in a 0.5% decrease in the quantitydemanded. b) Yes, the company total revenue will increase because the demandelasticity is only 0.5. A 1% increase in price will only result ina 0.5% decrease in the quantity demanded, so the total revenuestill increases. c) Cross elasticity = % chg in demand of bus rides / % chg in priceof gasoline When the price of gasoline increases, driving becomes moreexpensive and more people start using buses to satisfy theirtransportation needs. Given a 1% increase in the price of gasoline,there will be a 2% increase in the quantity of bus ridesdemanded. d) Cross elasticity = % chg in demand of bus rides / % chg in priceof gasoline 0.2 = x / 10 x = 2% The quantity of bus rides demanded will increase by 2%. e) In pioneer ville, a bus ride is an inferior good, because asconsumer income increases, the demand for bus rides decreases. Fora normal good, the opposite happens. f) Bus rides and gasoline are substitutes. When two goods aresubstitutes, the cross elasticity of demand will be positive, thatis, as the price of one goes up, the demand of the other willincrease.

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