Gina Kerr must travel on the Via Rail from Kingston to Winnipeg. The distance is 1,500 miles. A traveler can choose to make any fraction of the journey in a first-class carriage and travel the rest of the way in a second-class carriage. The price is 10 cents a mile for a second-class carriage and 20 cents a mile for a first-class carriage. Gina much prefers first-class to second-class travel. She plans to spend her entire $200 on her tickets. She will travel first class as much as she can afford to, but she must get all the way to Winnipeg, and $200 is not enough money to get her all the way to Winnipeg in first class.

(a) Let m1 be the number of miles she travels in first-class and m2 be the number of miles she travels in second-class. On the graph, draw the combinations of m1 and m2 that Gina can just afford to purchase with her $200. Solve for her choice of m1 and m2. (Hint: You need to find two equations to solve the two unknowns.) (5 Marks)

(b) Suppose that the price of second-class tickets falls to $0.05 while the price of first-class tickets remains at $0.20. On the graph that you drew in (a), draw the combinations of m1 and m2 that she can afford with her $200 at these prices. Solve for her choice of m1 and m2 at the new prices. (5 Marks)

(c) When the price of second-class tickets falls from $0.10 to $0.05, how much of a change in Gina's demand for second-class tickets is due to a substitution effect? How much of a change is due to an income effect? (5 Marks)

(d) Is second-class travel a normal good for Gina? Is it a Giffen good for her? Explain your understanding. (5 Marks)