Suppose that the income elasticity of demand for land is +0.75. The unit commuti

Question

Suppose that the income elasticity of demand for land is +0.75. The unit commuting cost (cost per mile) is the sum of monetary cost (30 cents per mile) and time cost (opportunity cost). Suppose that the typical commuter earns a wage of $12 and takes 30 minutes to commute 10 miles to work. Every worker values commuting time at half of his or her wage. Can the observed pattern of income segregation be explained by the trade-offs between commuting cost and land cost? If there is not enough information to answer the question, what additional information do you need, and how would you use it?

Explanation / Answer

Commuting time is valued at half the wage. Thus, commuting time is valued at $6/hour. Since you take 30 minutes to reach work, the time cost is $3 Since you walk 10 miles, the monetary cost is $3. Therefore, the total commuting cost is $6/hour. Since both of these values are equal, you can observe income segregation by the trade-offs between commuting cost and land cost! Please let me know if you need more help.

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