Assume you had the following observations on U.S. intercity rail travel: Between 1990 and 1993 rail travel increased from 17.5 passenger miles per person to 19 passenger miles per person. At the same time neither per-mile railroad price or incomes changed but the per-mile price of intercity airline travel increased by 7.5 percent. Between 1995 and 1998 per capita incomes rose by approximately 13 percent while the price of travel by rail and plane stayed constant. Intercity rail travel was 20 passenger miles per person in 1995 and 19.5 in 1998. Assuming the demand for travel didn’t change between these periods:
a. Calculate the income elasticity of demand for intercity rail travel.
b. Calculate the cross-price elasticity of demand for intercity rail travel.
c. Are air travel and rail travel substitutes or complements?
Is intercity rail travel a normal or an inferior good?