The Acmeville Metropolitan Bus Service currently charges $ 0.67 for an all-day ticket, and has an average of 472 riders a day. The bus company is not earning a profit, but according to their contract with the city, they cannot cut the number of buses on the road. They must therefore find a way to increase revenues. The bus company is considering increasing the ticket price to $ 0.78 . The marketing department's studies indicate this price increase would reduce usage to 182 riders per day. Calculate the absolute value of the price elasticity of demand for bus tickets using the simple percentage change method. Round your answer to one decimal place.

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30-03-2020
Business

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The Acmeville Metropolitan Bus Service currently charges $ 0.67 for an all-day ticket, and has an average of 472 riders a day. The bus company is not earning a profit, but according to their contract with the city, they cannot cut the number of buses on the road. They must therefore find a way to increase revenues. The bus company is considering increasing the ticket price to $ 0.78 . The marketing department's studies indicate this price increase would reduce usage to 182 riders per day. Calculate the absolute value of the price elasticity of demand for bus tickets using the simple percentage change method. Round your answer to one decimal place.

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hyderali230 hyderali230 · Answer 1 · 2020-04-03T15:55:19+02:00

Answer:

The price elasticity of demand is -3.7

Explanation:

Price Elasticity of demand measure the responsiveness of demand against the change in price of the product.

Simple percentage method calculate the price elasticity by taking ratio of percentage change in Demand to percentage change in price of the product.

Percentage change in Demand = ( Revised demand - Initial demand ) / Initial demand

Percentage change in Demand = ( 182 riders - 472 riders ) / 472 riders = -0.6144 = -61.44%

Percentage change in Price = ( Revised Price - Initial Price ) / Initial Price

Percentage change in Price = ( $0.78 - $0.67 ) / $0.67 = 0.1642 = 16.42%

Price Elasticity = Percentage change in Demand / Percentage change in price

Price Elasticity = -61.44% / 16.42% = -3.74 = -3.7

andromache andromache · Answer 2 · 2022-03-01T12:44:55+01:00

The absolute value of the price elasticity of demand for bus tickets is -3.7

Calculation of the price elasticity of demand:

Since the Bus Service presently charges $0.67 and there is an average of 472 riders per day.

And, The bus company considered the rising in price of the ticket to $ 0.78. The marketing department's studies represent this price rising that decreased to 182 riders per day.

So,

First

Percentage change in Demand = ( 182 riders - 472 riders ) / 472 riders

= -0.6144

= -61.44%

Now

Percentage change in Price = ( $0.78 - $0.67 ) / $0.67

= 0.1642

= 16.42%

Now finally the price elasticity should be

Price Elasticity = -61.44% / 16.42%

= -3.74

= -3.7

Therefore the absolute value of the price elasticity of demand is -3.7

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