Ms. Sarah Traveler does not own a car and travels only by bus, train, or plane. Her
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Ms. Sarah Traveler does not own a car and travels only by bus, train, or plane. Her utility function is given by
utility = b ? t ? p,
where each letter stands for miles traveled by a specific mode. Suppose that the ratio of the price of train travel to that of bus travel (p t / p b ) never changes.
a. How might one define a composite commodity for ground transportation?
b. Phrase Sarah’s optimization problem as one of choosing between ground (g) and air (p) transportation.
c. What are Sarah’s demand functions for g and p?
d. Once Sarah decides how much to spend on g, how will she allocate those expenditures between b and t?
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