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Economics 540 Assignment No. 3.4
Suppose you are the administrator in charge of setting the toll for crossing a toll bridge across a river. The current toll is $1 per trip and at that toll 1000 trips per hour are taken across the bridge.
(a) If the price elasticity of demand for trips is 2.0, what will happen to the number of trips taken per hour if you raise the toll by 10 percent? How would this affect the total revenue collected per hour?
(b) If the price elasticity of demand for trips is 0.5, what will happen to the number of trips taken per hour if you raise the toll by 10 percent? How would this affect the total revenue collected per hour?
(c) Other things equal, at the current toll of $1, what do you think will happen to the elasticity of demand for trips, if the average incomes of people who use the bridge rise? Explain why.
(d) Other things equal, at the current toll of $1, what do you think will happen to the elasticity of demand for trips if a non-toll bridge is built a few miles up the river? Explain why.
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