Ann lives in Princeton and commutes by train each day to her job in New York City (20 round trips per month). When the prices of a round trip goes up from $10 to $20, she responds by consuming, exactly the same number of trips as before, while spending $200 per month less on restaurant meals.
a.Does the fact that her quantity of train travel is completely unresponsive to the price increase imply that Ann is not a rational consumer?
b.Explain why an increase in train travel might affect the amount she spends on restaurant meals.
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Take a shot. What do you think. Hint for a) think about opportunity cost. Hint for b) think about budget constraints.
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