arc price elasticity of demand
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1 In 1998 the fare on Chicago’s transit system was 60 cents
per ride This resulted in 7116 million trips being taken on the system In
1999 the fare was increased to 80 cents and ridership declined to 6924 million
trips
a Compute
the arc price elasticity of demand for transit ridership in Chicago assuming
that all other factors influencing demand remained constant during this period
b Based on
your answer to part (a), do you believe the fare increase was a rational action
for the Chicago Transit Authority?
c What
other factors do you feel may have had an impact on ridership during this
period? Do you believe the decline in ridership experienced in 1999 tends to
overstate or understate the actual impact of the fare increase?
d In 2000
the fare increased to 90 cents and ridership declined to 640 million trips
Compute the arc price elasticity between 1999 and 2000 How can you account for
the differences between the 1998-1999 elasticity coefficient and the 1999-2000
elasticity coefficient?
2 The demand for haddock has been estimated as28
log Q = a + b log P + c log I = d log Pm
where Q = quantity of haddock sold in New England
P = price per pound of haddock
I = a measure of personal income in the New England region
Pm = an index of the price of meat and poultry
If b = -2174, c = 461, and d = 1909,
a Determine
the price elasticity of demand
b Determine
the income elasticity of demand
c Determine
the cross price elasticity of demand
d How would
you characterize the demand for haddock?
e Suppose
disposable income is expected to increase by 5 percent next year Assuming all
other factors remain constant, forecast the percentage change in the quantity
of haddock demanded next year