Answer to Question #302150 in Microeconomics for Plura

Question

The price elasticity of demand for urban transit fares has been estimated to lie between -0.1 and -0.6. Based on these results, what is the economic argument for raising transit fares? What political arguments might local governments and transit authorities encounter in opposition to these economic arguments?

Answer 1

This indicates that the price for transit fares is high therefore reducing the demand for public transport because people are sensitive to change in prices. Increase in fare prices causes passengers to cut off their daily expenses to save for fare. The economic argument is to increase amount of revenue in the transit authorities to manage transportations and any costs by the local government. For Urban transits,increase in fare prices does not change its demand because it is a necessity therefore increasing the total revenue in the local governments.