4. The subway fare in NY has just been increased from a current level of 50 cents to $1.00 per ride. As a result, the transit authority notes a decline in ridership of 30 percent. Compute the price elasticity of demand for subway rides.

a. If the transit authority reduces the fare back to 50 cents, what impact would you expect on the ridership? Why?

5. If the marginal revenue from a product is $15 and the price elasticity of demand is 1.2, what is the price of the product?