Elasticity cases, transport and vanity plates
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Economists have estimated the following transportation elasticities. For each pair, explain possible reasons why the elasticities differ. a. elasticity of demand for buses is 0.23 during peak hours and 0.42 during off-peak hours b. elasticity of demand for buses is 0.7 in the short run and 1.5 in the long run c. elasticity or demand for toll roads is 4.7 for low-income commuters and 0.63 for high-income commuters.
and
A study found that in California, where car vanity license plates cost $28.75, the elasticity of demand was 0.52. In Massachusetts, where vanity plates cost $50, the elasticity of demand was 3.52. a. Assuming vanity plates have zero production cost, was each state collecting the maximum revenue it could from vanity plates? Explain your reasoning. b. What recommendation would you have for each state to maximize revenue? c. Which state was most likely to be following a political unsupportable policy?
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Solution Summary
Economists have estimated the following transportation elasticities. For each pair, explain possible reasons why the elasticities differ. a. elasticity of demand for buses is 0.23 during peak hours and 0.42 during off-peak hours b. elasticity of demand for buses is 0.7 in the short run and 1.5 in the long run c. elasticity or demand for toll roads is 4.7 for low-income commuters and 0.63 for high-income commuters.
and
A study found that in California, where car vanity license plates cost $28.75, the elasticity of demand was 0.52. In Massachusetts, where vanity plates cost $50, the elasticity of demand was 3.52. a. Assuming vanity plates have zero production cost, was each state collecting the maximum revenue it could from vanity plates? Explain your reasoning. b. What recommendation would you have for each state to maximize revenue? c. Which state was most likely to be following a political unsupportable policy?
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a. During peak hours people might have to get to and from work quickly, there is no much option. During non-peak hours, people might decide to work (they have more time) or even to avoid traveling because of the increase in cost.
b. In the long run people might find alternative like using a car, or bike, or moving closer to work so they can walk. These, except perhaps the bike, are not easy to change in the short run.
c. Low income commuters would be more ...
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