1) The same study provides the following estimates of income elasticity of demand for public transportation....

1) The same study provides the following estimates of income elasticity of demand for public transportation.

Income elasticity Short-run -0. 67 Long-run -0.90

e. Is public transportation a normal good or an inferior good? How can you tell?

f. How would you interpret the difference between the short-run and long-run income elasticities? What does this difference tell us about consumers’ behavior? Explain.

g. If there’s a recession, and consumers’ incomes fall by 10%, on average, what do you think would happen to bus ridership in the short run? Would it rise or fall? Calculate an estimate of the percentage change in bus ridership that would result from a 10% drop in income in the short run. Show your work and explain.

Expert Solution

Rahul Sunny answered 6 months ago

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