Your City Council (in Los Angeles, it is the Metropolitan Transportation Authority or MTA) raises the bus fare from 75 cents to $1.00, and rider-ship (or the number of bus riders) subsequently falls by 40 percent.
Calculate the price elasticity demand for bus rides.
Next, suppose that the bus schedule is changed so that buses are 10 percent more frequent and that rider-ship subsequently rises to the level that existed before the fare increase. In other words, the fare increase has a negative impact on rider-ship, but the increase in the number of buses leads to an increase, or a positive impact, in rider-ship.
What is the frequency elasticity? In other words, what is the effect of more frequent buses on the number of bus riders?
How would you reconcile both frequency and price elasticity values you have calculated? [Note: Question 3Bii, recall how price elasticity is determined, then the frequency elasticity is similarly calculated. Question 3Biii, I am looking for the appropriate interpretation for policy when both elasticity values are considered together. Remember you have to make a presentation to the City Council or the MTA Board of Directors, and those folks are clueless about your methodology. They just want to vote on the proposed policy, which is based on your presentation]