Are air travel and rail travel substitutes or complements

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Reference no: EM131430779

Assume you had the following observations on Canadian intercity rail travel: Between 2008 and 2010, rail travel increased from 17.5 passenger kilometres per person to 19 passenger kilometres per person. At the same time, neither per-kilometre railroad price or incomes changed, but the per-kilometre price of intercity airline travel increased by 7.5 percent. Between 2011 and 2013, 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 kilometres per person in 2011 and 19.5 in 2013. 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?

Reference no: EM131430779

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