Scenario:
The subway fare in your town has just been increased from a current level of 50 cents to $1.00 per ride. As a result, the transit authority notes a decline in ridership of 30 percent.
Questions:
a. Compute the price elasticity of demand for subway rides.
b. If the transit authority reduces the fare back to 50 cents, what impact would you expect on the ridership? Why?
