Question

You can either take a bus or drive your car to work. A bus pass costs $5 per week, whereas driving your carto work costs $60 weekly (parking, tolls, gas, etc.). You spend half an hour less on a one-way trip in your carthan on a bus. How would you prefer to travel to work if your wage rate is $10 per hour? Will you change3 your preferred mode of transportation if your wage rate rises to $20 per hour? Assume you work five days aweek and time spent riding on a bus or driving a car does not directly enter your utility.

Answer 1

Step-by-step explanation:

At a wage of $10/hour

Cost of a bus pass - $5

Two way trip =$10

Weekly bus trip = 10*5 -$50 (to & fro)

Extra time spent with bus 5hr (to & fro)

(leisure time are charged at wage rate )

Extra wage forgone with bus = 10*5= $50

the cost of earning extra if i drive =$60

Cost outweighs benefit

I will prefer to go by bus.

But if wages increase to $20

Leisure time valued at $20, Extra wage forgone = 20*5 = 100

Cost of earning extra if i drive by car = $60

If i drive the car . i will save extra time that worth a benefit of $40/week

If the wage increase to$20 , i will prefer to drive my car.