Skyscraper City has a subway system, for which a one-way fare is $1.50. There is pressure on the mayor to reduce the fare by one-third, to $1.00. The mayor is dismayed, thinking that this will mean Skyscraper City is losing one-third of its revenue from sales of subway tickets. The mayor's economic adviser reminds her that she is focusing only on the price effect and ignoring the quantity effect. a. While the fare decline will negatively affect city revenue through the effect, it will positively affect city revenue through the effect. The overall effect on revenue will be positive if b. In the diagram, shade the areas representing the price effect and the area representing the quantity effect, given a fall in the subway fare from $1.50 to $1.00. 2.0 Price effect Quantity effect 1.5 Ticket price 1.0 0.5 D 0.0 0 MR 500 1,000 Number of subway rides 1,500 2,000 c. It is evident from the diagram that in this case, revenue doesn't change, since the price effect and quantity effect cancel out. revenue falls by a third, as the mayor feared. revenue rises, since the quantity effect dominates the price effect revenue falls (though by less than a third), since the price effect dominates the quantity effect