In Pioneer Ville, the price elasticity of demand for bus rides is 0.5, the income of elasticity for bus rides is -0.1, and the cross-elasticity of demand for bus rides with respect to gasoline is 0.2
(a) Is the demand for bus rides elastic or inelastic with respect to the price of a bus ride? Why?
(b) Would an increase in bus fares increase the bus company's total revenue? Explain?
(c) What is the relationshihp between the bus rides and gasoline?
(d) If the price of gasoline increases by 10% with no change in the price of a bus ride, how will the number of bus rides change?
(e) If the income in Pioneer Ville increases by 5% with no change in the price of a bus ride, how will the number of bus rides change?
(f) In Pioneer Ville, is a bus ride a normal good or an inferior good? Why?
(g) In Pioneer Ville, are bus rides and gasoline substitutes or complements? Why?
2007-03-09 17:55:32 · 1 answers · asked by Anonymous in Social Science ➔ Economics
a. It is inelastic. This is determined by the price elasticity being below 1. Above 1 is elastic, below 1 is inelastic, and exactly 1 is unitary elastic.
b. Yes, when a good is inelastic, an increase in price will increase the total revenue, since quantity demanded will decrease by less than the price increase.
c. These goods are substitutes. A rise in gasoline will cause more individuals to ride the bus. The cross elasticy of demand is positive, which means that they are substitutes.
d. Bus rides will increase, since they are substitute goods. As gasoline becomes more expensive, individuals will shift to the less expensive bus ride.
e. Bus rides will decrease. The income elasticity is negative, meaning that as income rises, demand for bus rides will decrease.
f. It is an inferior good. A negative income elasticity indicates that a good is an inferior good.
g. They are substitutes. Cross elasticity is positive.
2007-03-12 02:25:02 · answer #1 · answered by theeconomicsguy 5 · 0⤊ 0⤋