Suppose housing ((H)) and air quality ((A)) are the only two things entering into Jose's utility and
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Suppose housing \((H)\) and air quality \((A)\) are the only two things entering into Jose's utility and Jose's utility function is \(U(H, A)=A \cdot H\). Suppose Jose's income is \(\$ 10\) and the price of housing is \(\$ 2\).
a. If air quality is \(A=2\), how much housing will Jose purchase? Plot Jose's indifference curve and budget constraint through this point, showing how much housing is consumed.
b. Suppose air quality rises to \(A=4\). Plot Jose's new indifference curve and new consumption point.
c. How much would Jose be willing to pay to increase air quality from 2 to 4 ?
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To solve this problem well first analyze Joses consumption choices given his utility function income ...View the full answer
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