Richard Voith estimated the price elasticity of demand for round-trip rail fare to be 0.62. If fares rose by 30 percent, one would expect the quantity of round-trip tickets purchased to:
A) rise by 18.6 percent.
B) fall by 18.6 percent.
C) rise by 48.4 percent.
D) fall by 48.4 percent.

Question

Quizplus · Accepted Answer

The price elasticity of demand is 0.62, which means that for a 1% increase in price, the quantity demanded decreases by 0.62%. Therefore, a 30% increase in price would lead to a 30% * 0.62 = 18.6% decrease in the quantity of tickets purchased.

Richard Voith Estimated the Price Elasticity of Demand for Round-Trip