In a city with a medium sized population, the equilibrium price for a city bus ticket is

$2.00, and the number of riders each day is 5,400. The short-run price elasticity of

demand is -0.60, and the short-run elasticity of supply is 1.0.

a) Derive the short run linear supply and demand functions for bus tickets.

b) If the demand for bus tickets increased by 20% because of a rise in the price of car,

what would be the new equilibrium price of bus tickets?

c) If the city council refused to let the bus company raise the price of bus tickets after

the demand for tickets increases (see (b) above), what daily shortage of tickets

would be created?

d) Would the bus company have an incentive to increase the supply, given the city

council's decision in (c) above? Explain your answer.