MCQ Economics June 2004 Paper 1 Question 10

[arvind0708]

10 The table gives estimates of the price elasticities and cross-elasticities of demand for bus and rail
travel.
elasticity with respect to the price of:
service bus travel rail travel
bus travel –0.37 +0.13
rail travel +0.16 –0.43
What would be the change in the volume of rail travel resulting from a 1% increase in bus fares?
A an increase of 0.16 %
B an increase of 0.43 %
C a reduction of 0.13 %
D a reduction of 0.37 %

Help me in this question

 

[Xenon]

Bus and rail travel are substitute goods. So an increase in price of one will increase the demand for another. This means that an increase in bus fares by 1% will increase the demand of rail travel. By how much the demand of rail increases depends on the XED. From the table this is +0.16. Thus the volume/ demand of rail increases by .16%
Ans: A