Answer to Question #312597 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 for raising bus fares is that the passengers boarding the buses will still remain the same. The political and the transit authorities while trying to encounter opposition to this economic argument will try to reduce bus fares so that the number of travelers increases but it will not work when the price elasticity of demand is inelastic.