Question

In: Economics

when the new york city opera faced a growing deficit, it cut its prices by 20%...

when the new york city opera faced a growing deficit, it cut its prices by 20% hoping to attract more customers. at the same time, the new york transit authority raised subway fares to reduce its growing deficit. are one of these two opposite approaches to reducing deficit necessarily wrong? explain full.

Solutions

Expert Solution

These two opposite approaches cannot be stated correct in isolation. However, if we base our analysis on price elasticity of demand, we can understand whether these approaches are correct or not.

The reduction in ticket prices by opera will be able to increase its total revenue (and hence reduce deficit) only if the demand is elastic. This is because when the percentage rise in quantity will be greater than the percentage change in price, the total revenue will rise and it will be beneficial for the company.

On the other hand, the rise in fares by transit authority will be able to raise revenue only if the percentage decline in quantity demanded is less than the percentage rise in fares. In other words, total revenue will rise only when the demand is inelastic in this case.

Thus, if the above scenarios exist, the strategies will work. If elasticity of demand is not as expected, the strategies will not work.

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

When the New York City Opera faced a growing deficit, it cut its ticket prices by...
When the New York City Opera faced a growing deficit, it cut its ticket prices by 20% hoping to attract more customers. At the same time, the New York Transit Authority raised subway fares to reduce its growing deficit. Are one of these two opposite approaches to reducing a deficit necessarily wrong? Explain fully.
when the new york city opera faced a growing deficit, it cut its ticket prices by...
when the new york city opera faced a growing deficit, it cut its ticket prices by 20% hoping to attract more customers. At the same time, The new york transit authority raised subway fares to reduce its growing deficit. Are one of these two opposite approaches to reducing a deficit necessarily wrong? explain?
On average gas prices are higher in a City like Los Angeles than in New York...
On average gas prices are higher in a City like Los Angeles than in New York City. Why is this the case, considering that oil prices are international prices and there is not much difference in oil price as an international commodity in LA areas compared with New York?" What factors may impact this situation and what is it called in economics? Use your argument and suggest ideas and policies that can resolve this problem or at least reduce it.
1. Lyft cuts the price of a ride in New York City by 20%. Thereafter, the...
1. Lyft cuts the price of a ride in New York City by 20%. Thereafter, the quantity of rides demanded rises by 25%. What is the absolute value of the price elasticity of demand for Lyft rides? a. 0.8 b. –0.8 c. 1.25 d. –1.25
The Abbott government is concerned about the growing budget deficit, so it decides to cut government...
The Abbott government is concerned about the growing budget deficit, so it decides to cut government expenditures by $10 billion. They also decide the economy needs a boost so they decide to cut income tax by $30 billion. Would this simply mean a net increase in aggregate demand of $20 billion? Why or why not?
New Zealand's government has increased its spending this year, leading to a growing budget deficit. At...
New Zealand's government has increased its spending this year, leading to a growing budget deficit. At the same time, the Reserve Bank of New Zealand (New Zealand's central bank) said it would continue to try to stimulate the economy. This stimulus is likely to lead to rising prices for consumer goods, even as the prices of producer goods remain low. 1.How should we expect inflation as measured by CPI and as measured by the GDP deflator to compare to each...
How is the New York City Budget determined?
How is the New York City Budget determined?
How is the New York City Budget determined?
How is the New York City Budget determined?
New York City is the most expensive city in the United States for lodging.
New York City is the most expensive city in the United States for lodging. The mean hotel room rate is $204 per night (USA Today, April 30, 2012). Assume that room rates are normally distributed with a standard deviation of $55.what is the probability that a hotel room costs $225 or more per night?what is the probability that a hotel room costs less than $140 per night?What is the probability that a hotel room costs between $200 and $300 per...
New York City is the most expensive city in the United States for lodging.
New York City is the most expensive city in the United States for lodging. The mean hotel room rate is $205 per night (USA Today, April 30, 2012). Assume that room rates are normally distributed with a standard deviation of $55. Use Table 1 in Appendix B. a. What is the probability that a hotel room costs $225 or more per night (to 4 decimals)? b. What is the probability that a hotel room costs less than $143 per night...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT