The absolute value of the elasticity of the demand

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Now suppose that the city doubles the fee from $8 to $16. Let's determine what effect this will have on revenue for the city. To be conservative, let's assume that the absolute value of the elasticity of the demand for car trips in central London is 2, which is bigger than what you calculated in the previous question. Using a higher elasticity means that if you consider a given change in the total cost, the estimated number of trips will fall by more than it would if you used the true elasticity. Using this larger elasticity is conservative because it will cause you to underestimate the revenue the city will collect at the higher fee. It predicts a bigger fall in the number of drivers, which yields less revenue. So, if you find that revenue goes up when you use an elasticity of 2 to estimate the effect of changing the fee from $8 to $20, you can be sure that it will go up with a lower value of the elasticity. 7.1. Suppose that the increase in the fee from $8 to $16 reduces travel time in the central city from 30 minutes down to 20 minutes. Which of the following values is the best estimate of the percentage change in the total cost of driving in central London? A. 25% B. 30% C. 5% D. 20% E. 15% F. 10%

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The absolute value of the elasticity of the demand : Now suppose that the city doubles the fee from $8 to $16. Let's determine what effect this will have on revenue for the city. To be conservative, let's assume that the absolute value of the elasticity of the demand for car trips in central London is ..

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