A local transit authority charges $1 for a bus ride. An economics study suggests that in the price range from $0.50 to $1.50, the elasticity of demand for bus trips is 1.1. To increase its revenue, the transit authority should
A) raise the fare.
B) lower the fare.
C) leave the fare as it is.

Question

Quizplus · Accepted Answer

When demand is elastic (elasticity > 1), lowering the price will increase total revenue because the percentage increase in quantity demanded will be greater than the percentage decrease in price.

A Local Transit Authority Charges $1 for a Bus Ride