Question
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
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 $ 3 and train tickets cost $8 $ 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 answer.
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