Question

When tolls on the Dulles Airport Greenway were reduced from $2.25 to $1.50, traffic increased from 18,000 to 20,000 trips a day. Assuming all changes in quantity were due to the change in price, what is the price elasticity of demand for the Dulles Airport Greenway

Answer 1

The price elasticity demand for the Dulles Airport Greenway = -0.33

Explanation:

Price elasticity of demand is the ratio of how much the quantity of good demanded changes compared to the original demand divided by the change in price compared to the original price of the good.

Mathematically,

Price elasticity of demand = (ΔQ/Q) ÷ (ΔP/P)

ΔQ = Change in quantity demanded = 20000 - 18000 = 2000

Q = initial quantity demanded = 18,000

ΔP = Change in price = 1.5 - 2.25 = -$0.75

P = Original price = $2.25

price elasticity of demand

= (2000/18000) ÷ (-0.75/2.25)

= - 0.3333

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