Suppose an economist found that total revenues increase for the bus system when fares were raised, the conclusion is that the price elasticity demand for subway services over the range of fare increase is inelastic. True/False

True

Explanation:

Price Elasticity of Demand is responsive change in demand, due to change in price. P (Ed) = % change in demand / % change in price.

Demand can be classified on the basis of : Elasticity & its relationship with Total Revenue [ TR = P X Q]; as undermentioned : -

Elastic Demand : P (Ed) > 1, %change in demand > %change in price, Price & Total Revenue are inversely related [ P ↑ TR ↓, P ↓TR ↑ ] Inelastic Demand : P (Ed) < 1, % change in demand < %change in price, Price & Total Revenue are positively related [ P ↑ TR ↑, P ↓ TR ↓]

As Given : Increase in bus fares (price) lead to increase in total revenue. This implies Price & Total Revenue are directly related. So, Demand for subway bus services is Inelastic.

True

Explanation:

Price in-elasticity happens when individuals can not possibly shift or change their behaviors or process of Consummation.

In the case of the bus system, people do not have a Better choice from the bus system although the bus system increase bus fares.

If people do not have a better choice or option for there consumption, we say that price elasticity demand for a particular commodity is inelastic.