Conclude that the net benefits of the pool are negative

Reference no: EM13179357

An analyst is trying to determine the net social benefits generated by the city's public swimming pool. At the current admission price of $1.00, 400 individuals visit the pool annually. The total cost of the pool is $800 annually. Thus, the pool runs a deficit of $400.

a. From the information given above, can we conclude that the net benefits of the pool are negative? Why or why not?

b. Assume a review of economic studies has found that a typical elasticity of demand for similar community pools (including similar admission prices) is -1.25. Use this information to calculate net benefits of allowing free admission.

c. Assume that under a free admission policy, taxes will need to be increased to cover expenses incurred in operating the pool. Recalculate net benefits of allowing free admission if the city has a marginal excess tax burden of 0.25.

Reference no: EM13179357

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