the railways are making losses on passenger traffic, they should lower their fares.
The suggested remedy would only work, if the demand for rail travel had a price elasticity of
(A) Zero
(B) Greater than zero but less than one
(C)
One
(D)
Greater than one
Answers
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The ‘suggested remedy’ would only work if the ‘demand for rail travel’ had a ‘price elasticity’ of Greater than Zero and less than one.
Option: B
Explanation:
- If the railways decide to lower their fares their ‘demand for rail’ travel will increase.
- If the ‘income elasticity’ of demand is ‘greater than zero’, it means that demand for the good rises as income rises.
- If the ‘elasticity of demand’ is less than zero, then the demand for rail travel falls as ‘income rises’.
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greater than 1 bcz when price decreases qd rises more than change in price only when ep>1 , same like , here in this question incase railways lower the prices then there will be qd increases more means passengers will increase than change in price
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