Question

In 2018, the Kowloon Motor Bus Co. (KMB) in Hong Kong introduced the KMB Monthly Pass, which has enjoyed great popularity. The price is HK$780.  Each Pass has a 30-day validity period, and the limit for using the pass to travel on regular KMB routes and Route B1 is ten trips per day and two trips per day respectively.  With the exception of KMB routes K12, K14, K17 and K18, the offer covers all KMB and Long Win Bus (LWB) routes, including over 400 KMB routes (jointly-operated routes operated by KMB count) and over 30 routes operated by LWB.

1. Basing on the economic concepts/theories that you have learnt in the course, with appropriate assumptions, elaborate on the consumer group that will most likely buy the pass.   (Word limit: 150)

2. Correspondingly, with explanations draw the individual demand curve of this type of consumers.   

Answer 1

The consumer groups such as organisational who travel for work on daily basis and who work in firms, schools, colleges would most likely buy the pass as they will use it frequently. It will also be easy for them to travel on the weekends, thereby saving costs because of the 30 day validity. This increases the chances of consumers using it more frequently. Consumers are willing to pay in advance for the cumulative benefit they are getting from the pass, as their costs get saved, their time as they are frequent users, plus they get the added benefit of multiple trips, as two trips are essential to travel to a certain point. Thus frequent users and not impulsive travellers or on demand consumers will use the pass as it will be cumulatively cost saving.

So on the y axis there is quantity of ride and on the x axis there is price per ride, with the pass the consumers have to pay just $26 for 12 rides, whereas without the pass they would have paid $39 for 8 rides per day. Thus pass turns out to be cheaper with more number of rides for such consumers.