A municipal transit authority operates a commuter rail network. Economic analysis reveals that the price elasticity of demand (PED) for off-peak tickets is -1.25, while the PED for peak-time tickets is -0.60.
If the authority increases off-peak fares by 8% and decreases peak-time fares by 5%, what will be the effect on the total revenue generated from each passenger category?
Total revenue falls for off-peak tickets but rises for peak-time tickets.
Total revenue rises for off-peak tickets but falls for peak-time tickets.
Total revenue falls for both off-peak and peak-time tickets.
Total revenue rises for both off-peak and peak-time tickets.
256 exam-style questions on AQA A Level Economics 1.3 Price determination in a competitive market, covering 1.3.1 The determinants of the demand for goods and services, 1.3.2 Price, income and cross elasticities of demand, 1.3.3 The determinants of the supply of goods and services, 1.3.4 Price elasticity of supply, 1.3.5 The determination of equilibrium market prices, and 1.3.6 The interrelationship between markets. Each one has a worked solution and a mark scheme showing where the marks go.