On opportunity costs (3 points; 0.75 points per question)

Suppose ten years ago you lived 75 miles from Chicago and commuted daily to work either by car, which took 1.5 hours, or by train, which took 2 hours. Assume that the price of a train ticket was $25; the cost of gasoline, $10; and your wage, $20 per hour. Further, you applied a $0.20 per mile depreciation rate for your vehicle and paid $4 for tolls. (You were allowed to park at no additional expense in your firm's parking garage.)

1. Compute the opportunity cost of commuting (one way) to the city under each mode of transportation. (1 point) (-

Answer:

Train:

Auto:

1. Would a 20% tax on gasoline or a reduction of the time spent on the train by 30 minutes be more effective to incentivize the use of the train? Why? (0.5 points) (-

Answer:

1. Suppose free wireless service was introduced on the train. How might that affect the relative opportunity costs? (0.5 points) (-

Answer:

(d) How would a 20% tax on wages affect your relative opportunity costs? (1 point) (-

Answer:

Train:

Auto: