Alex has a monthly budget of $72 to spend on commuter train trips and organic pasta. Each train trip costs $12; each box of pasta costs $6. Alex's preferences for train travel and pasta are represented by the indifference map on the following page. a. Determine which line (L1, L2, L*, or L**) represents Alex's budget constraint. b. Find their utility-maximizing bundle (E1, E2, e*, or e**). How many train trips will Alex take? Suppose the state government establishes a program to subsidize public transportation for commuters, such that each train trip now costs Alex $6. c. Determine which line (L1, L2, L*, or L**) represents Alex's new budget constraint. d. Find their new utility-maximizing bundle (E1, E2, e*, or e**). Determine how many train trips Alex will now take. e. Find the size and direction (positive or negative) of the substitution effect for train trips. As part of your answer, state the starting quantity and ending quantity of train trips that represent this effect. f. Find the size and direction (positive or negative) of the income effect for train trips. As part of your answer, state the starting quantity and ending quantity of train trips that represent this effect. g. Is train travel a normal or inferior good for Alex?
Alex has a monthly budget of $72 to spend on commuter train trips and organic pasta. Each train trip costs $12; each box of pasta costs $6. Alex's preferences for train travel and pasta are represented by the indifference map on the following page. a. Determine which line (L1, L2, L*, or L**) represents Alex's budget constraint. b. Find their utility-maximizing bundle (E1, E2, e*, or e**). How many train trips will Alex take? Suppose the state government establishes a program to subsidize public transportation for commuters, such that each train trip now costs Alex $6. c. Determine which line (L1, L2, L*, or L**) represents Alex's new budget constraint. d. Find their new utility-maximizing bundle (E1, E2, e*, or e**). Determine how many train trips Alex will now take. e. Find the size and direction (positive or negative) of the substitution effect for train trips. As part of your answer, state the starting quantity and ending quantity of train trips that represent this effect. f. Find the size and direction (positive or negative) of the income effect for train trips. As part of your answer, state the starting quantity and ending quantity of train trips that represent this effect. g. Is train travel a normal or inferior good for Alex?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Bokes
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Transcribed Image Text:Alex has a monthly budget of $72 to spend on commuter train trips and organic pasta. Each
train trip costs $12; each box of pasta costs $6. Alex's preferences for train travel and pasta
are represented by the indifference map on the following page.
a. Determine which line (L1, L2, L*, or L**) represents Alex's budget constraint.
b. Find their utility-maximizing bundle (E1, E2, e*, or e**). How many train trips
will Alex take?
Suppose the state government establishes a program to subsidize public transportation for
commuters, such that each train trip now costs Alex $6.
c. Determine which line (L1, L2, L*, or L**) represents Alex's new budget constraint.
d. Find their new utility-maximizing bundle (E1, E2, e*, or e**). Determine how
many train trips Alex will now take.
e. Find the size and direction (positive or negative) of the substitution effect for train
trips. As part of your answer, state the starting quantity and ending quantity of train
trips that represent this effect.
f. Find the size and direction (positive or negative) of the income effect for train trips.
As part of your answer, state the starting quantity and ending quantity of train trips
that represent this effect.
g. Is train travel a normal or inferior good for Alex?
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