Suppose subway ridership in new york city rose by 12 percent after a fare decrease of 25 cents to $2.25. using the midpoint method, an estimate of the price elasticity of demand for subway rides is . true or false: according to your estimate, the transit authority's revenue rises when the fare decreases. true

The price elasticity of demand using the midpoint formula is -1.14.

b. True. A price elasticity of demand greater than -1 means that the demand for a product or service will increase greater than a given decrease in price . In such cases, the supplier stands to benefit from a reduction in prices.

We estimate the price elasticity of demand as follows:

From the question, we have percentage change in quantity demanded as 12%.

We estimate the percentage change in price with the midpoint formula as follows:

where

Since we have

P₂ - P₁                 -0.25        

and

P₂                        $.2.25    

from the question, we can find P₁ as follows:

Substituting the value of P₁ in the average prices formula we get

Substituting the value of average price in the percentage change in price formula we get,

Substituting the value of percentage change in price in the price elasticity of demand formula we get,

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