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Use the following information to work Problems 21 and 22 Gas Prices Send Surge of Travelers to Mass Transit With the price of gas approaching $4 a gallon more commuters are abandoning their cars and

Use the following information to work Problems 21 and 22. Gas Prices Send Surge of Travelers to Mass Transit With the price of gas approaching $4 a gallon, more commuters are abandoning their cars and taking the train or bus. It’s very clear that a significant portion of the increase in transit use is directly caused by people who are looking for alternatives to paying $3.50 a gallon for gas. Some cities with long-established public transit systems, like New York and Boston, have seen increases in ridership of 5 percent, but the biggest surges—of 10 to 15 percent over last year— are occurring in many metropolitan areas in the Southwest where the driving culture is strongest and bus and rail lines are more limited. Source: The New York Times, May 10, 2008

1. a. Sketch a graph of a preference map and a budget line to illustrate the best affordable combination of gasoline and public transit.

b. On your graph in part (a), show the effect of a rise in the price of gasoline on the quantities of gasoline and public transit services purchased.

2. If the gas price rise has been similar in all regions, compare the marginal rates of substitution in the Northeast and the Southwest. Explain how you have inferred the different marginal rates of substitution from the information in the news clip.

Jul 31 2020 View more View Less

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