Question

A city has built a bridge over a river and it decides to charge a toll to everyone who crosses. For one year, the city charges a variety of different tolls and records information on how many drivers cross the bridge. The city thus gathers information about elasticity of demand. If the city wishes to raise as much revenue as possible from the tolls, where will the city decide to charge a toll: in the inelastic portion of the

Answer 1

Answer: in the inelastic portion of the demand curve

Explanation:

Remaining part of the question is:

.. in the inelastic portion of the demand curve, the elastic portion of the demand curve, or the unit elastic portion?

Elasticity measures how much quantity demand changes in response to a change in price.

An inelastic demand means that when prices change, demand does not change as much. You can therefore increase prices with a good that has inelastic demand and still expect close to the same demand.

If the city wants to raise as much revenue as possible from the tolls, they should increase prices on the inelastic portion. Because it is inelastic, the demand will remain close to the same which would increase revenue as the same number of people are paying higher.