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Answer Both Parts of the Following Question

question 96

Essay

Answer both parts of the following question.
a. The San Francisco Chronicle reported that the toll on the Golden Gate Bridge was raised from $2 to $3. Following the toll increase, traffic fell by 5 percent. Based on this information, calculate the point price elasticity of demand. Is demand elastic or inelastic? Explain.
b. Stephen Leonoudakis, chairman of the bridge's finance auditing committee, warned that the toll increase could cause toll revenues to decrease by $2.8 million per year. Is this statement consistent with economic theory? Explain.


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