A study of mass-transit systems in American cities revealed that in the long run revenues generally decline after substantial fare increases. This would suggest that:Multiple Choicethe demand for mass transit is price-elastic in the long run.the demand for mass transit is price-inelastic in the long run.mass-transit service deteriorates in the long run as price rises.there are few good substitutes for such systems in urban areas.
Question
A study of mass-transit systems in American cities revealed that in the long run revenues generally decline after substantial fare increases. This would suggest that:Multiple Choicethe demand for mass transit is price-elastic in the long run.the demand for mass transit is price-inelastic in the long run.mass-transit service deteriorates in the long run as price rises.there are few good substitutes for such systems in urban areas.
Solution
The correct answer is: the demand for mass transit is price-elastic in the long run.
Here's why:
Price elasticity of demand measures how responsive the quantity demanded of a good is to a change in price. If demand is price elastic, it means that a change in price leads to a more than proportionate change in quantity demanded.
In this case, the study reveals that after substantial fare increases, revenues generally decline in the long run. This suggests that as the price (fare) increases, the quantity demanded decreases by a larger proportion, leading to a decrease in total revenue. This is a characteristic of price-elastic demand.
The other options are not supported by the information given. The text does not provide information about the quality of mass-transit service over time or the availability of substitutes in urban areas. And if the demand for mass transit was price-inelastic in the long run, an increase in price would lead to an increase in total revenue, which contradicts the findings of the study.
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