According to an article on the Boston Globe's Web site, during the last three months of 2014, gasoline prices dropped 33 percent at the same time as ridership on mass transit, such as subways and trains, increased by 1 percent.
According to a spokesperson for the American Public Transportation Association, a group that lobbies Congress on behalf of public transit systems, "Even with gas prices dropping like a rock, the public is still demanding more transit options."
a. On the basis of this information, is the cross-price elasticity of demand between gasoline and rides on mass transit positive or negative? Would you conclude that gasoline and rides on mass transit are substitutes or complements? Briefly explain.
b. During this period unemployment was declining, and the news story also included the observation, "An improving economy means more people need to get to work." Does this observation cause you to modify your answer to part (a)? Briefly explain.