You are Lori Lightfoot. The city needs money. You are contemplating 2 sources of revenue: levying a tax on gas in Chicago at $.50/ gal, and/or increasing the CTA fare $.25. The 2 demand schedules are as follows. Gas price Gallons demanded (in millions) CTA fare Number of riders (one way) (in millions) $4.50 1 $2.00 6 4.00 1.1 1.75 8 3.50 1.2 1.50 10 3.00 1.3 Assume the starting point is $4.00 gas and $1.75 CTA. Is one strategy better than the other (just from a money perspective)? Does this result make sense with your understanding of elasticity and total revenue? Why or why not?
You are Lori Lightfoot. The city needs money. You are contemplating 2 sources of revenue: levying a tax on gas in Chicago at $.50/ gal, and/or increasing the CTA fare $.25. The 2 demand schedules are as follows.
Gas price Gallons demanded (in millions) CTA fare Number of riders
(one way) (in millions)
$4.50 1 $2.00 6
4.00 1.1 1.75 8
3.50 1.2 1.50 10
3.00 1.3
Assume the starting point is $4.00 gas and $1.75 CTA. Is one strategy better than the other (just from a money perspective)? Does this result make sense with your understanding of elasticity and total revenue? Why or why not?
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