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Check Your Understanding

# Check Your Understanding - Myisha Coleman Check Your...

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Myisha Coleman April 22, 2013 Check Your Understanding Chapter 3: 3. The Olde Yogurt Factory has reduced the price of its popular Mmmm Sundae from \$2.25 to \$1.75. As a result, the firm’s daily sales of these sundaes have increased from 1,500/day to 1,800/day. Compute the arc price elasticity of demand over this price and consumption quantity range. The arc elasticity of demand is 7.52% therefore demonstrating there is a greater consumption of the product because the price decreased. 4. The subway fare in your town has just been increased from a current level of 50cents to \$1.00 per ride. As a result, the transit authority notes 60%a decline in ridership of 30 percent. Compute the price elasticity of demand for subway rides. The price elasticity of demand for subway rides is 60% If the transit authority reduces the fare back to 50 cents, what impact would you expect on the ridership? Why?

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Myisha Coleman April 22, 2013 If the fare is reduced to 50 cents there would be an increase in
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