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From the monkey - please comment:

Question:The economy is heading into a recession and the company is running at a loss. the rail fares is increasing. How do you use the information below to inform your decision on price?Do you rise or lower price?

1)Price elasticity of demand: -1.58explain:Because the PED is -1.58, we can know that the demand is elastic but the demand and price are not changing in the same direction..It means that when the price of bus goes up, the quantity demanded will go down at a big scale. Therefore,on the contrary, if we want to increase the demand we should lower the price .It is better to lower the price in my opinion.

2)Income elastic of demand: -2.43explain: Because of the negative YED which is estimated as -2.43, we can know that the demand is elastic which means that demand falls as income rises. So we can conclude that taking a bus isinferior. Therefore, the company should lower the price.

3)Cross elasticity of demand: 2.21explain: Because the XED is greater than 1, we can know that the two goods are substitues which means that the quantity demanded of taking a bus goes up with the increasing price of rail fares and they have close relationgship. Therefore, the company need to drop the price.

4)Price elasticity of supply: 1.15explain: Because the PES is greater than 1, the price of bus is elastic which means that the quantity supplied goes up along with the increasing price of taking bus. In conclusion, it is betterfor the company to rise the price.