Answer: -0.85
False.
Explanation: Price Elasticity of Demand = [tex]\frac{Percentage change in Quantity}{Percentage change in price}[/tex]
Percentage change in price = [tex]\frac{New Price- Original Price}{Average Price}[/tex]
Average Price = [tex]\frac{New Price + Old Price}{2}[/tex]
Old Price = 0.25 + New Price (2.5) = 2.75
Average Price = [tex]\frac{2.75 +2.50}{2}[/tex]
=[tex]\frac{5.25}{2}[/tex]
=2.625
Percentage change in price = [tex]\frac{New Price- Original Price}{Average Price}[/tex]
=[tex]\frac{2.50-2.75}{2.65}[/tex]
=[tex]\frac{-0.25}{2.65}[/tex]
=-0.094
Price Elasticity of Demand = [tex]\frac{Percentage change in Quantity}{Percentage change in price}[/tex]
Price Elasticity of Demand= 8%/0.094 = [tex]\frac{0.08}{-0.094}[/tex]
=-0.85
B. False, the Transit Authority's revenue rises when the fare increases. The price elasticity of demand for subway rides is less than 1, meaning that demand is price inelastic and a change in price creates a smaller change in quantity demanded. If fares decrease, revenue decreases. If fares increase, revenue increases. Prices should be raised to increase revenue.
