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Managerial Economics

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Time of Day Tolling on Sydney Harbour Tunnel On 27 January 2009, the New South Wales government introduced a new time of day tolling system for southbound traffic on the Sydney Harbour Bridge (SHB) and Sydney Harbour Tunnel (SHT). Previously, passenger vehicles paid a flat $3 toll to travel south on both these harbour crossings. The new system introduced the following tolls on weekdays for these two harbour crossings: From 6:30am to 9:30am: $4.00 From 9:30am to 4:00pm: $3.00 From 4:00pm to 7:00pm: $4.00 From 7:00pm to 6:30am: $2.50 Table 1 below shows average weekday southbound traffic volumes on the Sydney Harbour Tunnel for the 12 months before and after the new tolling system was introduced: Table 1: Sydney Habour Tunnel Traffic Before Traffic After 5:30am to 6:30am 6:30am to 9:30am 4:00pm to 7:00pm 7:00pm to 8:00pm 7:00pm to 6:30am (inclusive) 2103 10161 8192 1782 7709 2539 10123 8104 1781 8587 There is no toll on the Ryde Bridge to the west of the Sydney Harbour Bridge and Tunnel. Table 2 below shows southbound traffic on the Ryde Bridge before and after the new tolling system was introduced for the Sydney Harbour Bridge and Tunnel: Table 2: Ryde Bridge Traffic Before Traffic After 6:30am to 9:30am 4:00pm to 7:00pm 9954 9892 10380 10106 Based on the data in Tables 1 and 2, answer the following questions: 1. Based on the information given in Table 1, calculate the absolute value of the price elasticity of demand for southbound journeys on the Sydney Harbour Tunnel for each of the time periods shown in Table 1. (Note: use the midpoint formula and show your calculations) (2 marks) 2. Based on your calculations in question 1, indicate whether the price elasticity of demand is elastic, inelastic or unit elastic for each time period given in Table 1. What factors might explain the price elasticity of demand for private car travel on this harbour crossing? (2 marks)