Question
A staple in the commuter life of Greater Chicago, the Northern Indiana Commuter Train District (NICTD)commonly known as the South Shore Line has been operating
A staple in the commuter life of Greater Chicago, the Northern Indiana Commuter Train District (NICTD)commonly known as the South Shore Line has been operating commuter train service from northwest Indiana to downtown Chicago. The South Shore rail line was constructed between 1901 and 1908 and has operated for over 100 years. In 2019, the year before the outbreak of the Coronavirus pandemic, NICTD transported 2,795,474 week day commuter riders to and from suburbs in Northwest Indiana to Chicago at an average ticket price of $7 one way. But with more workers working from home, ridership plummeted in 2020. In 2022 ridership has rebounded, but only to 2,053,728 week day rides, far less than ridership pre-pandemic. Faced with revenue losses, NICTD is looking to raise ticket prices to raise revenues.
1A. Write out the formula for price elasticity of demand using the midpoint formula.
1B. From information in the article, calculate total revenue for NICTD in 2019.
1C. From information in the article, calculate total revenue for NICTD in 2022 assuming ticket prices have not changed.
1D. NICTD has estimated the price elasticity of demand for commuter rail service is 1.3. If NICTD raises ticket prices by 5 percent, showing all calculations, what will be the expected change in the number of riders at the higher ticket price.
1E. Using your answer in 1D, calculate NICTD's expected revenue from a ticket increase of 5 percent.
1F. Explain if NICTD is employing sound economic reasoning to raise more revenue.
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