Question

Average weekly riders 1026 (starts at 1200 ends at 955)

Average ticket prices 160 cents (45 - 300)

Average population 1680 (1800 - 1610)

Average income 5532 (2900 - 8100)

Average parking rate 321 cents (150 - 600)

Use average values of the variables to calculate the elasticities of demand with respect to these factors.

Based on these elasticity values, comment on how future demand is likely to be affected if there are going to be changes in these factors.

Answer 1

(1)

Price elasticity of demand = (Change in riders / Average riders) / (Change in price / Average price)

= [(1200 - 955) / 1026] / [(45 - 300) / 160]

= (245 / 1026) / (- 255 / 160)

= - 0.15

Therefore, when ticket price rises (falls) by 1%, number of riders falls (rises) by 0.15%.

(2)

Elasticity with respect to population = (Change in riders / Average riders) / (Change in population / Average population)

= [(1200 - 955) / 1026] / [(1800 - 1610) / 1680]

= (245 / 1026) / (190 / 1680)

= 2.11

Therefore, when population rises (falls) by 1%, number of riders rises (falls) by 2.11%.

(3)

Income Elasticity of demand = (Change in riders / Average riders) / (Change in income / Average income)

= [(1200 - 955) / 1026] / [(2900 - 8100) / 5532]

= (245 / 1026) / (- 5200 / 5532)

= - 0.25

Therefore, when income rises (falls) by 1%, number of riders falls (rises) by 0.25%.

(4)

Elasticity with respect to population = (Change in riders / Average riders) / (Change in parking rate / Average parking rate)

= [(1200 - 955) / 1026] / [(150 - 600) / 321]

= (245 / 1026) / (- 450 / 321)

= - 0.17

Therefore, when parking rate rises (falls) by 1%, number of riders falls (rise) by 0.17%.