Answer to Question #311120 in Microeconomics for kobby

Question

The price elasticity of demand for urban transitfares has been estimated to lie between

-0.1 and -0.6. Based on these results, what isthe economic argument forraising transit

fares? What political arguments might local governments and transit authorities

encounterin opposition to these economic arguments?

Answer 1

The economic argument of raising fare is that the price elasticity is inelastic and therefore there will be no much change in demand for the vehicles.

The local authority will argue in terms of raising their revenues and to do that they have to impose some taxes that will translate in to raising of fare.