Question

Economists working for the united states have determined that the elasticity of demand for gasoline is 0.5. capcitymetro decides to increase bus fare rates from $2.00 to $2.21. consequently, the number of passengers who decide to take the bus in austin drops from an average of 70,000 riders a day to an average of 61,000 riders a day.

Answer 1

Answer: Inelastic, Elastic

Explanation:

Demand for a good is inelastic when it is less than 1 and elastic when it is greater than 1.

Economists claim that for United States the elasticity is 0.5 that is the demand for gasoline is inelastic.  

Capacity metro increases price from $2.00 to $2.21 as a result demand falls from 70,000 rides to 61,000 rides.  

$e= \frac{70,000 - 61,000}{70,000} * \frac{2.00}{2.21 - 2.00}$

= $= \frac{9,000}{70,000}*\frac{2}{0.21}$

$=1.22$

Demand for capacity metro rides is elastic.