The bus service the Meanwells began is the only one in their small city. We’ll also...

The bus service the Meanwells began is the only one in their small city. We’ll also assume there’s no other alternative form of public transportation. For each of the following determinants of elasticity, evaluate the price sensitivity of their bus service at a price of $3 per ride.

Question 5 – Substitutability

Question 6 – Need

Question 7 – Proportion of Budget

Question 8 – Are there any proactive steps the Meanwells might take to reduce the price sensitivity of their bus service so they can increase the price charged?

Expert Solution

Answer to Q. No. 5

Substitutability: As mentioned that the bus service in the Meanwells has no substitute available it is the only form of public transportation available. With no substitute available in the mode of public transportation its price sensitivity is low at a price of $3 per ride as people have to opt only this form of public transportation. In other words, if the authority increases the price per ride people will still use this form of public transport.

Answer to Q. No. 6

Need: In order to move from one place to another people need some mode of transportation. Public transportation is considered to be the cheapest mode of transportation as the cost of trip is shared among many passengers. As their is only one form of public transport in the Meanwells people will travel only through this mode. In other words, need for this form of public transport is very high. Thus, its price sensitivity is low.

Answer to Q. No. 7

Proportion of budget: When less proportion of budget is spent on the commodity its price sensitivity is low as the consumer can ignore the change in the price of that commodity as it will put much burden on the budget of the consumer. In the case of Meanwells, if the price per trip which is $3 is consuming very less proportion of the budget of the consumer. Hence, its price sensitivity will be low. and in the case where the low income person is travelling in bus and price per trip is consuming high proportion of his budget for that person the price sensitivity will be high.

Answer to Q. No. 8

Authorities in the Meanwells should maintain their monopoly in the public transportation to maintain low price sensitivity of their bus service and they will be able to charge high prices per trip.

Rahul Sunny answered 2 years ago

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