A Local Transit Authority Charges $1 for a Bus Ride

question 210

Multiple Choice

A local transit authority charges $1 for a bus ride. An economics study suggests that in the price range from $0.50 to $1.50, the elasticity of demand for bus trips is 1.1. To increase its revenue, the transit authority should

• A) leave the fare as it is.
• B) raise the fare.
• C) lower the fare.
• D) charge $1.10.

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Definitions:

Retained Earnings

The portion of a company's profits that is kept or retained rather than paid out as dividends to shareholders.

Flotation Costs

Expenses incurred by a company in issuing new securities, including underwriting, legal, and registration fees.

Capital Gains

The profit earned from the sale of assets or investments when the selling price exceeds the purchase price.

CAPM

Capital asset pricing model. A statistical model of the investment world aimed at explaining how required returns are determined in financial markets and thereby how stock prices are set. Also see SML.