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Executive Summary

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Introduction

Executive Summary This report will look for alternative ways in which the London Underground can change their prices in order to reduce their loss in terms of total revenue. The report will both identify and analyse these alternative methods in an attempt to find the most suitable way of increasing the revenue for the London Underground. The report will also look at how elasticity plays a key role in determining any decisions as well as the outcome of these decisions made. CONTENTS PAGE 1.0 INTRODUCTION TO THE PROBLEM 1.1 DEFINITION OF ELASTICITY 1.12 DIFFERENCE BETWEEN ELASTIC AND INELASTIC DEMAND 2.0 WAYS IN WHICH FARES CAN BE ADJUSTED 2.01 OPTION 1 2.02 OPTION 2 2.03 OPTION 3 6.0 REFERENCE LIST 1.0 INTRODUCTION TO THE PROBLEM The London Underground is at this very time running at a loss and is in urgent need of things being turned around. The London Underground may at one point in the future be privatised. ...read more.

Middle

2.02 OPTION 2 Fare prices can be increased because many people see this service as inelastic as they do not have any other means of transport. A lot of business people use this service and may well be able to afford to pay the extra cost. However this is a very risky method as it may encourage people to use private transport which may take the business further into a slump. 2.03 OPTION 3 The other way of adjusting fares can be to calculate whether the revenue which is being received from students is at the optimum level. They also need to calculate whether revenue received from business and middle aged people are enough. This is a balancing method between option one and two, and would be the most suitable method. However, a lot of research will be needed to make this method succeed, as they are dealing with mass amounts of finance. ...read more.

Conclusion

Section C Cigarettes are an example of an inelastic product because as more people begin smoking, they gradually become addicted and so become reliant on them and would pay high amounts for them as they have left the category of luxury item and become a necessity. Petrol is a common example of an inelastic product due to the lack of substitutes available i.e. If a car took unleaded petrol it is unable to use any other form of fuel and trying to change this can be an extremely tedious and expensive task. The other alternatives to travelling are public transport, which most people don't enjoy using for various reasons. Cars will always be in demand and therefore until electric cars become more common, petrol will be needed and therefore makes this an inelastic product. CD's are an example of price elasticity of demand, as there is a limit on how much people are willing to spend on these products. There are many substitutes for this product such as cassettes, mini-discs, with the main alternative to this product being downloading off the internet as this is a relatively inexpensive form of media. ...read more.

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