22 Jul WHAT IS THE FREQUENCY ELASTICITY?
The following two unrelated questions 3A and 3B pertain to the application of elastici Show more Question 3. The following two unrelated questions 3A and 3B pertain to the application of elasticity: Question 3A. Suppose that a particular gas station raises the price of gasoline from $4.00 per gallon to $4.59 per gallon. The quantity of gasoline sold falls from 2000 gallons per day to 1350 gallons per day. What is the price elasticity of demand for gasoline in this range of consumption? Is the demand for gasoline at the gas station elastic or inelastic? Depending on your answer could you explain why is it elastic or inelastic? 3Ai. Have you ever noticed how few gasoline stations are found in the center of large cities say downtown Los Angeles or San Francisco? With such heavy traffic one ought to be able to do an excellent business. Why then are they so few gas stations? 3Aii. Would you expect the demand for gasoline in the U.S. to be elastic or inelastic? Please explain (Hint: do not confuse with the demand for modes of transportation). 3Aiii. Despite the high prices of gasoline gas stations from coast to coast have been closing at a fast rate more than 3000 stations by the end of 2012. Could you think of the causes of these closures? Question 3B. Your City Council (in Los Angeles it is the Metropolitan Transportation Authority or MTA) raises the bus fare from 75 cents to $1.00 and rider-ship (or the number of bus riders) subsequently falls by 40 percent. 3Bi. Calculate the price elasticity demand for bus rides. Next suppose that the bus schedule is changed so that buses are 10 percent more frequent and that rider-ship subsequently rises to the level that existed before the fare increase. In other words the fare increase has a negative impact on rider-ship but the increase in the number of buses leads to an increase or a positive impact in rider-ship. 3Bii. What is the frequency elasticity? In other words what is the effect of more frequent buses on the number of bus riders? 3Biii. How would you reconcile both frequency and price elasticity values you have calculated? [Note: Question 3Bii recall how price elasticity is determined then the frequency elasticity is similarly calculated. Question 3Biii I am looking for the appropriate interpretation for policy when both elasticity values are considered together. Remember you have to make a presentation to the City Council or the MTA Board of Directors and those folks are clueless about your methodology. They just want to vote on the proposed policy which is based on your presentation] Show less
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