Question

A major city was thinking about increasing its bus fares and commissioned a study to estimate the price elasticity of demand. The study estimated that elasticity was 0.4. What action should the city have taken to increase revenue from bus fares?a. Increase faresb. Decrease faresc. Do not change faresPart B:If the city examined the elasticity of bus fares again, what would they likely find?a. Elasticity is now greater than 1b. Elasticity is now less than 1c. Elasticity is O

Answer 1

To increase revenues of from bus fares the city must increase fares.

Th elasticity is less tha one.

Step-by-step explanation:

We are talking about a first neccesity service that always have inelastic demand. That means that the percentage in the change of the quantity demanded is smaller than the percentage of change in the price.

When that occurs the elasticity is less than 1. The porcentage change in quantity demanded (reduction) is smaller than the percentage change in the price (rise)