Problem 1: The Sydney Transportation Company operates on urban bus system in New South Wales, Australia. Economic analysis performed by the firm indicates that two major factors influence the demand for its services: fare levels and downtown parking rates. Table 1 presents information available from 2005 operations. Forecasts of future fares and hourly parking rates are presented in Table 2.
Table 1 Average Daily Average Downtown Parking Rate
Transit Riders (2005) Round-Trip Fare
5,000 $1.00 $1.50
Table 2 Year Round Trip Fare Average Parking Rates
2006 $1.00 $2.50
2007 $1.25 $2.50
Sydney’s economists supplied the following information so that the firm can estimate ridership in 2006 and 2007. Based on past experience, the coefficient of cross elasticity between bus ridership and downtown parking rates is estimated at 0.2, given a fare of $1.00 per round trip. This level of elasticity is not expected to change for a fare increase to $1.25. The price elasticity of demand is currently estimated at -1.1, given hourly parking rates of $1.50. It is estimated, however, that the price elasticity will change to -1.2 when parking rate increase to $ 2.50. Using these data, estimate average daily ridership for 2006 and 2007.
Problem 2: The Olde Yogurt Factory reduced the price of it popular Mmmmm Sundae from $2.25 to $1.75. As a result, the firm's daily sales of these sundaes have increased from 1500 per day to 1800 per day. Compute the are price elasticity of demand over this price and consumption quantity range.
Problem 3: The demand function for bicycles in Holland has been estimated to be
Q = 2,000 + 15y - 5.5p
where Y is income in thousands of euros, Q is the quintity demanded in units, and P is the price per unit. When P= 150 euros and Y = 15(000) euros, determine the following:
a. Price elasticity of demand
b. Income elastcity of demand
Problem 4: A study of the long-term income elasticity of demand for housing by renters is in the range of 0.8 to 1.0, whereas the income elasticity for owner-occupants is between 0.7 and 1.15.
a. If income levels are expected to increase at a compoung annual rate of 4 percent per year for the next five years, forecast the impact of this increase in income levels on the quantity of housing demanded in the two markets (rental and owner-occupants) in five years (assume that the price of housing does not change over this period).
b. What would be the impact of price increases during this period on the levels of demand forecasted in part (a)?