1. [15 marks] A government might make a new national park. If they decide to create it, demand for trips to the park is p = 140 2Y each year for years 0 (this year), 1 and 2, where Y is number of trips people will make to the park. Other benefits are (i) a fall in pollution worth $1000 each year and (ii) intangible benefits of $x. Assume that the cost of creating the park is $18,000 in year 0, and entry to the park will be free for visitors. Let the social discount rate, r, be 0.1.

a. [9 marks] Calculate the consumers surplus the park would create in each year. Using your answer, and the three-year time span, what value of x is necessary for the park to pass a cost-benefit test?

b. [6 marks] Assume that the park needs someone to look after it, which means a park ranger will be hired at $2,000 each year. Recalculate the intangible benefits needed for the park project to pass a cost-benefit test.

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