There were nearly four million fewer [subway] riders in December 1995, the first full month after the price of a token increased 25 cents to $1.50, than in the previous December, a 4.3 percent decline.@ (New York Times, Feb. 17, 1996) Use these data to estimate the price elasticity of demand for subway rides. According to your estimate, what happens to the Transit Authority’s revenue when the fare rises? Why might your elasticity estimate be unreliable?

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Answered: There were nearly four million fewer…

Micro Economics For Today

10th Edition

ISBN:9781337613064

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter5: Price Elasticity Of Demand And Supply

Section: Chapter Questions

Problem 7SQP: Suppose a movie theater raises the price of popcorn 10 percent, but customers do not buy any less...

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There were nearly four million fewer [subway] riders in December 1995, the first full month after the price of a token increased 25 cents to $1.50, than in the previous December, a 4.3 percent decline.@ (New York Times, Feb. 17, 1996)

Use these data to estimate the price elasticity of demand for subway rides.
According to your estimate, what happens to the Transit Authority’s revenue when the fare rises?
Why might your elasticity estimate be unreliable?

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