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MIT1_201JF08_hw_2 - 1.201 11.545 ESD.210 Analysis Demand...

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1.201 / 11.545 / ESD.210 Transportation Systems Analysis: Demand and Economics Assignment 2 Question 1 Elasticities and Consumer Surplus In April of 1973, the Massachusetts Bay Transportation Authority (MBTA) initiated an experiment called “Dime Time.” On weekdays between the hours of 10am and 3pm, the fare for travel on the MBTA’s rail lines was reduced from 25 cents to 10 cents, but was 25 cents during all other hours. During the “Dime Time” experiment, which lasted until August 1975, fares for bus travel remained at 20 cents per ride during all hours. The “Dime Time” experiment provided an unusual opportunity to evaluate the sensitivity of midday rail transit demand to a reduction in fare, a subject of interest to many transit operators and planners. Relevant data from the experiment are presented in Table 1. a. Using the data provided in Table 1, estimate the fare elasticity of total weekday demand for MBTA rail transit service during midday (10am-3pm). b. According to this elasticity estimate, is the demand for midday rail transit service elastic or inelastic? Comment on your answer. c. How does the elasticity of demand for midday rail transit service vary among the three income groups (low, moderate, and high) for which ridership data are reported in Table 1? Comment on these variations. d. Table 1 also reports the prior behavior of MBTA rail transit passengers traveling during “Dime Time” hours. Boston’s regional transportation planning agency estimated that 233,760 auto trips (including both driver and passenger trips) were made in the MBTA service area on a typical weekday before the “Dime Time” program began. From these data, estimate the cross elasticity of demand for auto travel with respect to fare for midday rail transit trips. How do you interpret the arithmetic sign of this elasticity?
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