BUS 640 WK3assgmt Part 2

BUS 640 WK3assgmt Part 2 - Substitution and Income Effects...

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Substitution and Income Effects Jennifer Baxter BUS 640 Managerial Economics Professor Fanning June 20, 2011 Driving an SUV entails putting 30 gallons of gasoline in the gas tank when it’s time to fill up. At $3.73 per gallon, it costs me $111.90 to fill up the tank when it is completely empty.
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Getting between 16 and 19 miles to the gallon, I can drive a little over 500 miles on a full tank of gas if the majority of my driving is done on the highway. I would venture to say, I fill my tank twice a month which totals $223.80 a month on gas. Living outside city limits, coupled with the fact that I have 3 children, city transit is not a viable option for me. With that being said, if gasoline prices were to rise 100%, I can claim with close to absolute certainty that I would not leave the house near as often as I do! I would compile a list of errands, grocery shopping, meetings, etc so that I could accomplish everything I needed to do with one trip, as opposed to breaking my to-do list into multiple trips. Driving considerably less, I would purchase considerably less gasoline. However, with the steep increase in price, I would still be paying roughly the same amount of money as I am today; I would just be driving less. In
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BUS 640 WK3assgmt Part 2 - Substitution and Income Effects...

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