Description

If a product or service is elastic, it is possible to predict how that product or service will respond when there is a change in supply or demand. Understanding elasticity can help you make better decisions about purchases because you can consider whether the product price will go up or down and whether now is a good time to buy.

Instructions

1.Read the information here on New York City subway fare rates:

On February 17, 1996, The New York Times reported that subway ridership declined in the year after a fare increase. The fare was increased from 25 cents to $1.50. The paper measured the number of riders for December 1995 and compared that number to the number of subway riders in December 1994. The paper reported that ridership declined by 4.3 percent, nearly 4 million fewer riders.

2.address the following questions:

• How would you describe the supply curve after the subway price increase? Did it change? If so, why and how did it change?
• How would you describe the demand curve after the increase in price? Did the demand curve move to the right or left, or shift up or down? Explain.
• Estimate the price elasticity of demand for subway rides. Do you think subway fares are elastic? Why or why not?
• What do you think happened to revenue when the fare went up? Explain your answer.