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Suppose a consumer has a certain amount of income that is spent on transportation, which can take two forms, rides in a cab (X) and
Suppose a consumer has a certain amount of income that is spent on transportation, which can take two forms, rides in a cab (X) and rides on a bus (Y). The government keeps on giving larger and larger quantity subsidies for rides on a bus which decreases the price of bus rides, but the amount of bus rides stays the same. Which of the following three types of preferences does the consumer have, Cobb- Douglas, perfect substitutes, or perfect complements? Briefly explain.
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