Friday, February 25, 2011

elastic prices

price goes up, number of things sold goes down.  simple enough.  economists, being what they are, have given this wonder phenomenon the fancy name "negative price elasticity."  here's how it works in practice.  price of silver line ride: free if you have a day pass, or $6/day.  here's the northbound silver line during evening rush hour:

pretty much every seat is taken.  i know this picture isn't the greatest of evidence, but i didn't want to be the weirdo taking pictures of everyone (even though i was).

now, price of 450x: $1.40/ride even with a day pass, or $8.80/day in practical terms (day pass plus taking the 450x once in each direction).  here's the northbound 450x during evening rush hour:

you can see the back half of the bus is nearly empty and the front half is only about half full.  price goes up, riders go down.  that's negative price elasticity.  see, econ's not so hard.

1 comment:

  1. if you crunch some numbers, you'll see that the elasticity is anywhere from 1.5 to 9.5 (with the real value probably about 4 or 5 if you collect enough data). higher numbers mean higher sensitivity to price fluctuations, with exactly 1 being "neutral." in other words, bus riders are quite sensitive to price. we knew that already, right? what's econ for again?