Question

Statistical data provided by the U.S. Department of Transportation shows that Group A is more likely to travel by bus systems whereas Group B is more likely to travel by air. Assume the economic benefit of travelling by bus and explicit costs are the same for both groups. Which of the following is most likely given this scenario? DEFINE YOUR ANSWER

A.Persons in Group B are more likely to fly because the opportunity cost of their time is generally higher than those in Group A

B.Traditionally, persons in Group B prefer slower methods of transportation.

C.Individuals in Group A own stock in the airlines and, therefore, receive preferential treatment.

D.Persons in Group A are generally located near bus stations; persons in Group B congregate around airports.

Answer 1

It has been stated that economic benefits of traveling and explicit cost of traveling is same for the both groups.

Thus, the difference between the choice about the mode of transportation made by the two groups is due to implicit cost of travelling.

Implicit cost is also referred to as the opportuntiy cost. In this case, the implicit cost or opportunity cost is the time cost of travel.

Air travel is faster mode of transportation than bus travel

This means that the person who puts higher value on his time tends to travel by air. In other words, the person with higher time cost of travel (opportunity cost of time) will travel by air.

In given case, Group B travels by air.

Thus,

Persons in Group B are more likely to fly because the opportunity cost of their time is generally higher than those in Group A.

Hence, the correct answer is the option (A).