Q.4 a) What can be said about the price elasticity of demand in each of the following statements? i) “The Tikka delivery business in this town is very competitive. I’d lose half my customers if I raised the price by as little as 10%.” ii) “My economics professor has chosen to use the Mankiw textbook for this class. I have no choice but to buy this book.” iii) “I always spend a total of exactly Rs.1000 per week on coffee.”
Q.4
a) What can be said about the price elasticity of
i) “The Tikka delivery business in this town is very competitive. I’d lose half my customers if I raised the price by as little as 10%.”
ii) “My economics professor has chosen to use the Mankiw textbook for this class. I have no choice but to buy this book.”
iii) “I always spend a total of exactly Rs.1000 per week on coffee.”
b) A news website reported (Feb. 17, 2020) that ridership of Karachi Metro Bus declined after a fare increase: “There were nearly four million fewer riders in December 2019, the first full month after the price of a token increased Rs. 25 to Rs.150, than in the previous December, a 4.3 percent decline.”
i) Use these data to estimate the price elasticity of demand for Karachi Metro Bus.
ii) According to your estimate, what happens to the Karachi Metro Bus’s revenue when the fare rises?
iii) Why might your estimate of the elasticity be unreliable?
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