The number of taxicabs in Motorville and the taxicab fares are regulated. The fare currently charged is $5 a ride. Motorville taxicab drivers want to obtain government's permission to raise the fare to increase their revenues and ask you to be their economic adviser. After studying the market, you come up with the following demand schedule for taxicab rides: Price (dollars per ride) Quantity demanded (rides per month) 3 160 4 120 5 80 40 7 (i) Calculate the price elasticity of demand for taxicab rides as the fare rises from $5 to $6. Is the demand price elastic or inelastic for this fare rise? (ii) What happens to the taxicab drivers' total revenue if the fare rises from $5 to $6? How can you use your answers in part “a" to answer this question? Should the drivers try to obtain permission to raise the fare? (iii) Calculate the price elasticity of demand for taxicab rides as the fare falls from $5 to $4. Is the demand price elastic or inelastic for this fare decrease?

The number of taxicabs in Motorville and the taxicab fares are regulated. The fare currently charged is $5 a ride. Motorville taxicab drivers want to obtain government's permission to raise the fare to increase their revenues and ask you to be their economic adviser. After studying the market, you come up with the following demand schedule for taxicab rides: Price (dollars per ride) Quantity demanded (rides per month) 3 160 4 120 5 80 40 7 (i) Calculate the price elasticity of demand for taxicab rides as the fare rises from $5 to $6. Is the demand price elastic or inelastic for this fare rise? (ii) What happens to the taxicab drivers' total revenue if the fare rises from $5 to $6? How can you use your answers in part “a" to answer this question? Should the drivers try to obtain permission to raise the fare? (iii) Calculate the price elasticity of demand for taxicab rides as the fare falls from $5 to $4. Is the demand price elastic or inelastic for this fare decrease?

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter5: Elastic And Its Application

Section: Chapter Questions

Problem 8PA: The New York Times reported (Feb. 17, 1996) that subway ridership declined after a fare increase:...

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