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Suppose the government builds a railway in northwest New Territories. With the aid of a diagram, explain the effect of this new railway on the total revenue.

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Presentation on theme: "Suppose the government builds a railway in northwest New Territories. With the aid of a diagram, explain the effect of this new railway on the total revenue."— Presentation transcript:

1 Suppose the government builds a railway in northwest New Territories. With the aid of a diagram, explain the effect of this new railway on the total revenue of mini-buses operating on the same route. (6 marks) (6 )

2 The new railway service is a substitute of minibus service. D1D1 P Q P2P2 Q2Q2 P1P1 Q1Q1 S D2D2 So the demand for minibus service may decrease. The total revenue decreases from P 1 Q 1 to P 2 Q 2.

3 Suppose there is a drastic increase in sewage charges which affects the total revenue of local restaurants. With the aid of a diagram, explain the condition under which the total revenue would decrease. (8 marks) (8 )

4 The sewage charges increases cost. So the supply decreases. P Q P1P1 Q1Q1 P2P2 Q2Q2 D new expenditure original expenditure S1S1 S2S2 -+ If the demand is elastic, the % increase in price is smaller than the % decrease in quantity demanded. So the total revenue decreases.


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