Laila is an economist for the City Subway Commission

Economics Dec 23, 2020

Laila is an economist for the City Subway Commission. Presently, the price of a subway ride is 80, and 250,000 seats are filled weekly. The price elasticity of demand for subway rides is -0.40, and the income elasticity of demand is -0.60.

(i) If a recession lowered area incomes by 5%, how many additional seats per week would the subway need?

(ii) The Commission has just approved a subway price increase of 10 per ride. As a result, will the Commission's total revenue from subway rides rise or fall?

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