Suppose housing and air quality-what is new utility level

Assignment Help Business Economics

Reference no: EM131101603

Suppose housing (H) and air quality (A) are the only two things entering into Aaron's utility and the utility function is U(H, A) = A ∗ H. Suppose Aaron's income is $10 and the price of housing is $2. (a) Air quality is a non-excludable, public good so Aaron does not need to pay for it. How much housing will Aaron purchase? (b) If air quality is A = 2, which is the utility level? (c) Plot Aaron's indifference curve and budget constraint through this point, showing how much housing is consumed. (d) Suppose air quality rises to 4. What is the new utility level? (e) Plot Aaron's new indifference curve, budget constraint and consumption point. (f) What is the maximum amount of money Aaron would be willing to pay (WTP) to increase air quality from 2 to 4? (g) What is the minimum amount of money Aaron would be willing to accept (WTA) as compensation for a decrease in air quality from 4 to 2? (h) What is the economic intuition behind the relationship between WTP and WTA in your answers to part (1f) and (1g)?

Reference no: EM131101603

Questions Cloud

What is the calculated t value : The management of the Delphi Corp. is considering a new method of assembling a carburetor assembly for racing cars. The present method requires an average of 24.0 minutes to assemble a carburetor. What is the calculated t value? What is your statisti..

Remote rural area with no competition nearby : For years, you were the owner/operator of a small gift shop in a remote rural area with no competition nearby. As such you were making above average profits every year. Consequently, new competitors were attracted to your market and eventually you fo..

Carving up the market and price fixing : Few years ago, the European Commission accused three major European breweries, Heineken, Grolsch, and Bavaria, of “carving up the market,” and “price fixing” and imposed a fine of 274 Euros on them. Explain what kind of market structure give rise to ..

Fees for any given institution of higher education : The tuition's and fees for any given institution of higher education are theoretically the same for all attending students. Colleges and universities, however, routinely charge different tuitions and fees to different students. These differences show..

Suppose housing and air quality-what is new utility level : Suppose housing (H) and air quality (A) are the only two things entering into Aaron's utility and the utility function is U(H, A) = A ∗ H. Suppose Aaron's income is $10 and the price of housing is $2. (a) Air quality is a non-excludable, public good ..

Without government intervention : Without government intervention, it is ___________ true that ___________ in equilibrium. Aalways; private marginal benefit equals private marginal cost

Price equal marginal cost-price equal average cost : There are problems faced by regulators in setting price for a natural monopoly. There are different regulatory options for setting prices: price equal marginal cost; price equal average cost. compare and contrast them. Identify the potential problems..

Qualitative and quantitative research project : You have been assigned to contract with an outside research firm to do both qualitative and quantitative research project for your company. Describe the criteria that you would establish in making this selection. In addition, explain your reasons for..

Lower interest rates increased demand for machinery : Parker Hannifin benefitted when the Federal Reserve slashed the federal funds rate to near-zero levels in 2008. Lower interest rates increased demand for its machinery components, which would allow Parker Hannifin to ________ employment and ________ ..

User Account

All Pages