The Transportation Authority of Buck Snort, Tennessee raised the bus fares from $.80 to $1.00 on January 1, 2016. The authority’s ridership statistics show that the number of passengers riding buses decreased from 50,000 in 2015 to 38,000 in 2016. Required:

a. What is the arc price elasticity of demand for bus fares?
b. Suppose the TA did not adjust the bus fares as indicated in the original statement of the problem, but rather observed the change in ridership over the period as a result of a change in consumer incomes. Suppose you know that consumer incomes in this market were, on average, $40,000 in 2015. Further suppose that you know that the arc income elasticity over the 2015-2016 period is –2. What happened to average consumer income over this period given what you know about ridership over the period?

Variable rate cd’s = $90 treasury bills = $150 discount loans = $20 treasury notes = $100 fixed rate cds = $160 money market deposit accts. = $140 savings deposits = $90 fed funds borrowing = $40 variable rate mortgage loans $140 demand deposits = $40 primary reserves = $50 fixed rate loans = $210 fed funds lending = $50 equity capital = $120 a. develop a balance sheet from the above data. be sure to divide your balance sheet into rate-sensitive assets and liabilities as we did in class and in the examples. b. perform a standard gap analysis and a duration analysis using the above data if you have a 1.15% decrease in interest rates and an average duration of assets of 5.4 years and an average duration of liabilities of 3.8 years. c. indicate if this bank will remain solvent after the valuation changes. if so, indicate the new level of equity capital after the valuation changes. if not, indicate the amount of the shortage in equity capital.