Explain why the estimate that 'the price elasticity of demand for municipal e-bike rentals is -0.6' may be of relevance to the city council operating the scheme.
Refer to Extract A in your answer.
Urban micro-mobility schemes, particularly dockless e-bikes, have become a cornerstone of low-carbon municipal transport strategies. In the city of Danecastle, the 'VeloGo' e-bike fleet has expanded to over 2,500 active bikes. Currently, users pay a flat access fee of £1.50 plus a usage charge of £0.20 per minute. The average journey lasts 15 minutes, costing a total of £4.50.
However, the local council is facing severe budget constraints due to rising battery replacement costs and vandalism, leading to a projected £350,000 annual deficit in the scheme's operating budget. To close this gap, the council is planning to increase the usage charge by 25% to £0.25 per minute (bringing the average 15-minute trip cost to £5.25, a 16.67% overall price increase).
Critics argue that this price hike will drive commuters back to using private cars or diesel buses, undermining the city's net-zero targets. However, transport economists have estimated that the price elasticity of demand (PED) for VeloGo e-bike rentals is approximately -0.6.
Unlike traditional pedal bikes, e-bikes offer a quicker, sweat-free commute, which users value highly, especially given the hilly terrain of Danecastle and the lack of reliable cross-city bus routes. Furthermore, a recent survey revealed that 70% of regular riders have an annual household income well above the city average, suggesting that they are relatively less sensitive to minor price changes.
