Consider the effect of hi

Consider the effect of hi

Consider the effect of higher gasoline prices on public transit ridership. The initial price of public transit is $2.00 per ride and the initial ridership is 100,000 people per day. Suppose the elasticity of transit ridership with respect to the price of gasoline is +0.667 (or 2/3) and the price of gasoline increases by 30 percent.a. Assume the price of public transit remains at $2. Use a graph to show the effect of the increase in the gas price on transit ridership.b. Suppose the transit authority matches the increase in the price of gasoline, increasing the transit fare by 30 percent. The price elasticity of demand for transit ridership is 0.333 (or 1/3). Use your graph to show the combined effect of the gas tax and higher transit fare.c. Explain why the net change in transit ridership is positive or negative.

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