ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Myrtle has $400 per month to spend on Transit (X) and all other goods (Y). She currently buys a bus pass for $100 and rides 80 times per month.If she didn't buy the pass, bus rides would cost $2/ride and she would take 20 trips. She is indifferent between the $100 bus pass and $2 per ride. Myrtle is offered to join a Transit program that would allow her to pay a registration fee and then could ride the bus for $1 per trip. The most Myrtle would pay for the membership is $30 and then she would ride 40 times a month. If she were given the membership for free, she would ride the bus 45 times per month. Myrtle also reveals that she would be indifferent between a free membership (and $1 per ride) versus simply having the traditional bus pass reduced to $50 per month (flat rate), where she would again choose to ride the bus 80 times a month.
- Using all the information provided, draw all the relevant budget constraints and indifference
curves. Be sure to label all equilibrium points and have a legend that explains each point (in one or two sentences). - Calculate her CV (compensating variation)
- Calculate her EV (equivalent variation)
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