The Melbourne city council is considering a fare increase for its city bus service. At the current fare of $0.50, 1000 tickets are sold daily. The city estimates that if it raises fares to $1.00, sales will decline to 600.

a) What is the price elasticity of demand? Is demand elastic or inelastic?

b) If the city wants to raise more revenue from its bus system, what should it do to the price of fares? Why?