This is an open-ended question that our prof gave my class to think about:
Transportation economists generally agree that the cross price elasticity of demand for automobile use with respect to the price of bus fares is about 0. Explain this number's meaning. Do you agree? Why or why not?
My guess is that even though cars and public transit are similar services, cross elasticity is close to 0 (meaning that change in bus fare prices barely affects demand for automobiles) because many people who use the bus as their primary means of transportation would not be motivated enough to buy new cars if fares went up.
I'd just like to know what you guys think. Am I right or wrong? Do you have another explanation? Thanks in advance!
Transportation economists generally agree that the cross price elasticity of demand for automobile use with respect to the price of bus fares is about 0. Explain this number's meaning. Do you agree? Why or why not?
My guess is that even though cars and public transit are similar services, cross elasticity is close to 0 (meaning that change in bus fare prices barely affects demand for automobiles) because many people who use the bus as their primary means of transportation would not be motivated enough to buy new cars if fares went up.
I'd just like to know what you guys think. Am I right or wrong? Do you have another explanation? Thanks in advance!