The city of Mainville has 1000 riders per day along a popular bus route. An urba

Question

The city of Mainville has 1000 riders per day along a popular bus route. An urban economist has

estimated the following demand elasticities along this route:

Elasticity of demand with respect to travel time: --0.6.

Elasticity of demand with respect to access time: --0.9.

Elasticity of demand with respect to price: --0.5.

Calculate the net effect on ridership of the following proposals. SHOW WORK

a) Increasing the number of stops: By increasing the number of bus stops, the transit

authority believes it can decrease access time by 10%, at the cost of increasing travel time

by 8%.

The proposal to decrease access time will [increase decrease] ridership by __________,

and the proposal to increase travel time will [increase decrease] ridership by

___________, for a net [increase decrease] of ___________ riders per day.

Explanation / Answer

e(TT) = Elasticity of demand with respect to travel time: = -0.6

e(AT) = Elasticity of demand with respect to access time = -0.9

e(P) = Elasticity of demand with respect to price = -0.5.

a) Increasing the number of stops: By increasing the number of bus stops, the transit

authority believes it can decrease access time by 10%, at the cost of increasing travel time

by 8%.

e(AT) = (dQ/Q) / (d AT / AT) = -0.9

d AT / AT = -0.1

so

dQ/Q = -0.9*-0.1 = 0.09

e(TT) = (dQ/Q) / (d TT / TT) = -0.6

d TT / TT = 0.08

so

dQ/Q = -0.6*0.08 = - 0.048

The proposal to decrease access time will Increase ridership by 9% (i.e.90 riders per day) and the proposal to increase travel time will Decrease ridership by 4.8% (i.e.48 riders per day) for a net Increase of 42 riders per day.

e(AT) = (dQ/Q) / (d AT / AT) = -0.9

d AT / AT = -0.1

so

dQ/Q = -0.9*-0.1 = 0.09

e(P) = (dQ/Q) / (dP /P) = -0.5

d P / P = 0.1

so

dQ/Q = -0.5*0.1 = - 0.05

e(P) = (dQ/Q) / (dP /P) = -0.5

d P / P = -0.08

so

dQ/Q = -0.5*-0.08 = 0.04

e(AT) = (dQ/Q) / (d AT / AT) = -0.9

d AT / AT = 0.05

so

dQ/Q = -0.9*0.05 = -0.045

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