Question

Suppose the bus ride from Waigani to Gerehu cost K1. How would the quantity of bus
rides change if the cost of the trip increases by 10% and the price elasticity of demand for
bus rides is -0.5.
a. -5%
b. -0.5%
c. 50%
d. None of the above

Answer 1

To calculate the change in quantity of bus rides based on a price increase and the price elasticity of demand, you can use the formula:

\[
\text{Percentage Change in Quantity} = \text{Price Elasticity of Demand} \times \text{Percentage Change in Price}
\]

In this case:

- The price of the bus ride increases by 10%, so the percentage change in price is +10% or 0.10.
- The price elasticity of demand is -0.5.

Now, substituting the values into the formula:

\[
\text{Percentage Change in Quantity} = -0.5 \times 0.10 = -0.05
\]

Converting -0.05 to a percentage gives -5%.

Thus, the answer is:

**a. -5%**