The Sydney Transportation Company operates an urban bus system in New South Wales, Australia. Economic analysis performed by the firm indicates that two major factors influence the demand for its services: fare levels and downtown parking rates. Table 1 presents information available from 2005 operations. Forecasts of future fares and hourly parking rates are presented in Table 2. Average Daily Transit Riders (2005) 5,000 Year 2006 2007 Table 1 Average Downtown Round-Trip Fare (Dollars) 1.00 1.25 (Dollars) 1.00 Table 2 Round-Trip Fare Average Parking Rates (Dollars) 2.50 2.50 Parking Rate (Dollars) 1.50 Sydney's economists supplied the following information so that the firm can estimate ridership. Based on past experience, the coefficient of cross elasticity between bus ridership and downtown parking rates is estimated at 0.2, given a fare of $1.00 per round trip. This is not expected to change for a fare increase to $1.25. The price elasticity of demand is currently estimated at -1.1, given hourly parking rates of $1.50. It is estimated, however, that the price elasticity will change to -1.2 when parking rates increase to $2.50. Using these data, estimate the average daily ridership for 2006 and 2007. Year Average Daily Transit Riders 2006 2007
The Sydney Transportation Company operates an urban bus system in New South Wales, Australia. Economic analysis performed by the firm indicates that two major factors influence the demand for its services: fare levels and downtown parking rates. Table 1 presents information available from 2005 operations. Forecasts of future fares and hourly parking rates are presented in Table 2. Average Daily Transit Riders (2005) 5,000 Year 2006 2007 Table 1 Average Downtown Round-Trip Fare (Dollars) 1.00 1.25 (Dollars) 1.00 Table 2 Round-Trip Fare Average Parking Rates (Dollars) 2.50 2.50 Parking Rate (Dollars) 1.50 Sydney's economists supplied the following information so that the firm can estimate ridership. Based on past experience, the coefficient of cross elasticity between bus ridership and downtown parking rates is estimated at 0.2, given a fare of $1.00 per round trip. This is not expected to change for a fare increase to $1.25. The price elasticity of demand is currently estimated at -1.1, given hourly parking rates of $1.50. It is estimated, however, that the price elasticity will change to -1.2 when parking rates increase to $2.50. Using these data, estimate the average daily ridership for 2006 and 2007. Year Average Daily Transit Riders 2006 2007
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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9. Exercise 3.9
The Sydney Transportation Company operates an urban bus system in New South Wales, Australia. Economic analysis performed by the firm indicates
that two major factors influence the demand for its services: fare levels and downtown parking rates. Table 1 presents information available from 2005
operations. Forecasts of future fares and hourly parking rates are presented in Table 2.
Table 1
Average Daily Transit Riders Average Downtown Round-Trip Fare Parking Rate
Year
2006
2007
Average / 1
(2005)
5,000
(Dollars)
1.00
1.25
(Dollars)
1.00
Table 2
Round-Trip Fare Average Parking Rates
(Dollars)
2.50
2.50
(Dollars)
1.50
Sydney's economists supplied the following information so that the firm can estimate ridership. Based on past experience, the coefficient of cross
elasticity between bus ridership and downtown parking rates is estimated at 0.2, given a fare of $1.00 per round trip. This is not expected to change
for a fare increase to $1.25. The price elasticity of demand is currently estimated at −1.1, given hourly parking rates of $1.50. It is estimated,
however, that the price elasticity will change to -1.2 when parking rates increase to $2.50.
Using these data, estimate the average daily ridership for 2006 and 2007.
Year Average Daily Transit Riders
2006
2007
Expert Solution
Step 1
Elasticity of demand is the responsiveness of the quantity demanded of a product to changes in one of the variables on which demand depends. As such, it is the percentage change in quantity demanded partitioned by the percentage in one of the variables on which demand depends.
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