Use the following information to work Problems 3 to 5 In Pio

Use the following information to work Problems 3 to 5. In Pioneer Ville, the price elasticity of demand for bus rides is 0.5, the income elasticity of demand for bus rides is -0.1, and the cross elasticity of demand for bus rides with respect to gasoline (for individual consumption) is 0.2. 3. Is the demand for bus rides elastic or inelastic with respect to the price of a bus ride? Why? Would an increase in bus fares increase the bus company’s total revenue? Explain your answer. 4. Describe the relationship between bus rides and gasoline. If the price of gasoline increases by 10 percent with no change in the price of a bus ride, how will the number of bus rides change? 5. If incomes increase by 5 percent with no change in prices, how will the number of bus rides change? Is a bus ride a normal good or an inferior good? Why? Are bus rides and gasoline substitutes or complements? Why?

Solution

Demand for bus ride is inelastic since elasticity is less than 1.yes it would increase revenue because due to inelastic demand demand does not fall much as price rises.

Bus ride decreases as gasoline price increases and vice versa. If gasoline price rises by 10% bus ride will decrease by 092(10)=2 %

As income increases demand for bus ride falls by - 0.1(5)= - 0.5 percent. It is inferior good as as income elasticity is negative

Can answer only 4 parts according to chegg policy. Please send other parts as separate question