Question
The monthly demand for trotro rides in Kumasi, Ashanti depends on the price of a taxi ride, the price of a trotro ride, and the
The monthly demand for trotro rides in Kumasi, Ashanti depends on the price of a taxi ride, the price of a trotro ride, and the average monthly income of riders. Some consumers might choose to ride the taxi instead of the trotro, while other riders might use both forms of transportation to get to their final destination. The demand function for trotro rides is:
Qd = 9,750 - 500P + 250Pj + 5INCOME,
where Qd is the number of trotro rides demanded per month, P is the price of a ride, Pj is the price of a taxi ride, and INCOME is the average monthly income of riders.
a. Suppose that P = $1.50, Pj = $4.00, and INCOME = $3,000. What is the monthly quantity of trotro rides demanded?
b. Suppose that P = $1.50, Pj = $4.00, and INCOME = $3,000. What is the value of the cross-price elasticity of demand? Based on your answer, are taxi rides and trotro rides substitutes or complements?
c. Suppose that P = $1.50, Pj = $4.00, and INCOME = $3,000. What is the value of the income elasticity of demand? Based on your answer, are taxi rides an inferior or a normal good?
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