Managerial Economics: Applications, Strategy and Tactics 12th Edition by James McGuigan, Charles Moyer, Frederick Harris

Exercise 4

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.
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