Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Vera commutes to work. She can choose between taking the bus (B) or the train (T) (or some combination of the two). Initially, when bus

image text in transcribed
Vera commutes to work. She can choose between taking the bus (B) or the train (T) (or some combination of the two). Initially, when bus tickets costs $3 and train tickets cost $8 each, she maximizes her utility by buying 5 train tickets and 12 bus tickets. Today, she discovers that the price of train tickets has changed. As a result: . For train tickets, the substitution effect is -0.5 and the income effect is -0.5. . For bus tickets, the substitution effect is +1.5 and the income effect is -1.5. Part a) (1 point) How many train and bus tickets will Vera purchase now, given the new train ticket price? You should either show some simple calculations, OR use 1-2 sentences to explain how you arrived at your numerical answer. Part b) (2 points) How much income does Vera allocate to buying bus and train tickets? How much do train tickets cost today? Part c) (2 points) What type of goods (normal, inferior, Giffen) are bus and train tickets? To receive full marks, you must use 1-2 sentences to explain how you arrived at your answer. Part d) (2 points) Are bus and train tickets substitutes, complements, or unrelated? To receive full marks, you must use 1-2 sentences to explain how you arrived at your

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Macroeconomics

Authors: N. Gregory Mankiw, William M. Scarth

5th Canadian Edition

1464168504, 978-1464168505

Students also viewed these Economics questions

Question

Show that (p q) (r s) and (p r) (q s) are not logically equivalent.

Answered: 1 week ago