Substitution and service quality effects on transport demand

Steps:

• Higher car parking charges increase driving costs, shifting demand from cars to substitute bus travel via positive cross-price elasticity.
• Increased bus service frequency lowers effective travel time and cost, enhancing attractiveness and shifting the demand curve rightward for buses.
• First official's claim aligns with substitution effect, making it correct.
• Second official's claim contradicts service improvement benefits, making it incorrect.

Why A is correct:

• Aligns with law of demand: parking price rise reduces car use and boosts substitute demand; frequency rise improves utility, raising bus demand.

Why the others are wrong:

• B: First statement is correct due to substitution, not incorrect.
• C: Second statement is incorrect as frequency boosts, not reduces, demand.
• D: Same as C; both statements are not both incorrect.

Final answer: A