Case 3: Uber Surge Pricing and Demand Elasticities

(10 marks)

In case of rideshare market such as Uber, surging the price dampens demand. It was observed that if prices increased for a ride from $5.00 to $ 6.00, a 1.2x surge, there was a precise 27% drop in demand. Based on the above information and the figure below that depicts surge pricing, answer the following questions:

Exhibit 3: Uber Surge Pricing Example and Commentary SURGE PRICING Demand is off the charts! Fares have increased to get more Ubers on the road. 2.1X THE NORMAL FARE $16.80 MINIMUM FARE $0.84 / MIN $3.04 / KM I ACCEPT HIGHER FARE OR NOTIFY ME IF SURGE ENDS Source: Uber App 2