Question

Assume that two separate events affect the market for taxi rides in New York City: a. There is a 20 percent increase in New York subway fares. As a result, the price of a taxicab ride increases by 5 percent. b. An economic expansion causes a 5 percent increase in the incomes of tourists visiting New York City. As a result, the price of a taxicab ride increases by 2 percent. Describe the cross-price and income elasticity formulas and use the formulas to determine the values of these elasticities for taxicab rides.

Answer 1

According to the question, two events are explained in the following section

Event 1: the price of a taxicab ride increases by 5 percen due to a 20 percent increase in New York subway fares

Event 2: the price of a taxicab ride increases by 2 percent due to a 5 percent increase in the incomes of tourists visiting New York City

In terms of a cross price elasticity definition, percentage change in quantity demanded for event A is divided by the percentage change in price of the event B

Cross price elasticity formula 20/2=10

Income elasticity: as per definition income elasticity basically helps to measure the change in quantity demanded of a product due to the change in income of an event.

2/5=0.40