Explain why the city council estimate the revenue

Reference no: EM131481150

Question: A local community bus service charges $2.00 for a one-way fare. The city council is thinking of raising the fare to $2.50 to generate 25% more revenue. The council has asked for your advice as a student of economics. In your analysis, be sure to break down the impact of the price increase into the price effect and the output effect. Explain why the city council's estimate of the revenue increase is likely to be overstated. Use a graph to illustrate your answer.

Reference no: EM131481150

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