Question

Suppose the price of an airline ticket from dallas to boston costs $600. a bus ticket costs $150. traveling by plane takes 6 hours compared with 51 hours by bus. other things constant, an individual would gain by choosing air travel if, and only if, his time were valued at more than how much? show your work.

Answer 1

Price of the plane ticket = $600

Price of the bus ticket = $150

Additional money for plane ticket = 600-150 =$450

Time taken by air travel = 6 hours

Time taken by bus travel = 51 hours

Time saved by air travel = bus travel time - air travel time = 51-6 = 45 hours

So, for savings 45 hours, you spend $450 more for the plane travel

So the individual would only gain if his value is time is greater than Amount spend on plane/saved time

So the individual would only gain if his value is time is greater than $450/45 hr=$10/hr

Other things constant, an individual would gain by choosing air travel if, and only if, his time were valued at more than $ 10 per hour