A local transit authority has just applied to its regulatory board for a fare increase on its rail-transit system,arguing that the increase is needed to cover rising costs.A citizen's committee is opposed to the proposed increase,arguing that the company could increase its revenue by decreasing fares.Which of the statements below is correct?
A)The company thinks that the demand is inelastic,whereas the committee thinks it is elastic.
B)The company thinks that the demand is elastic,whereas the committee thinks it is inelastic.
C)Both the company and the committee think that elasticity is unity.
D)It is possible that both the company and the committee are correct.

Question

Quizplus · Accepted Answer

The company believes raising fares will increase revenue, indicating they think demand is inelastic (changes in price have a small effect on demand). The committee believes lowering fares will increase revenue, indicating they think demand is elastic (changes in price have a large effect on demand).

A Local Transit Authority Has Just Applied to Its Regulatory