Answer
a) price elasticity is .2365
b) When the fare rises, the revenue also increases.
c) The estimate of elasticity might be unreliable since we are looking at only one comparable month.
Work Step by Step
a)
$Elasticity=\frac{(Q_{2}−Q_{1})/[(Q_{2}+Q_{1})/2]}{(P_{2}−P_{1})/[(P_{2}+P_{1})/2]}$
old price was 1.25, new price is 1.50
$Elasticity=\frac{4.3}{(1.5−1.25)/[(1.5+1.25)/2]}$
$Elasticity=\frac{4.3}{.25/1.375}$
$Elasticity=\frac{4.3}{.25/1.375*100}$
$Elasticity=\frac{4.3}{18.1818}$
$Elasticity = .2365$
b)
Since the elasticity is fairly inelastic, there will not be a large change in the number of riders as prices increase.
c)
The fare increase had just happened, so we are in the short run. We need more data over time to truly determine if the price increase affected people enough for people to take alternative methods of transportation.
