Recently a railroad asked the state commerce commission for permission to increase its commuter rates by 20 percent.The railroad argued that declining revenues made this rate increase essential.Opponents of the rate increase contended that the railroad's revenues would fall because of the rate hike.It can be concluded that:
A)the railroad felt that the demand for passenger service was elastic and the opponents of the rate increase felt it was inelastic.
B)the railroad felt that the demand for passenger service was inelastic and the opponents of the rate increase felt it was elastic.
C)both groups felt that the demand was inelastic but for different reasons.
D)both groups felt that the demand was elastic but for different reasons.
E)both groups felt that the demand was inelastic for the same reason.

Question

Quizplus · Accepted Answer

The railroad argued that declining revenues made the rate increase essential, indicating that they believed the demand for passenger service was inelastic, meaning that the increase in price would not result in a significant decrease in demand. On the other hand, opponents of the rate increase contended that the railroad's revenues would fall because of the rate hike, indicating that they believed the demand for passenger service was elastic, meaning that the increase in price would result in a significant decrease in demand. Therefore, choice B is the best answer.

Recently a Railroad Asked the State Commerce Commission for Permission