Gas prices and Public Transit Ridership - Consider the effect of higher gasoline prices on public transit ridership. The initial price of public transit is $2.00 per ride and the initial ridership is 100,000 people per day. Suppose the elasticity of transit ridership with respect to the price of gasoline is +0.667 (or 2/3) and the price of gasoline increases by 30 percent.

Required:

Question 1: Assume the price of public transit remains at $2. Use a graph to show the effect of the increase in the gas price on transit ridership.

Question 2: Suppose the transit authority matches the increase in the price of gasoline, increasing the transit fare by 30 percent. The price elasticity of demand for transit ridership I 0.333 (or 1/3). Use your graph to show the combined effect of the gas increase and higher transit fare.

Question 3: Explain why the net change in ridership is positive or negative.