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4. Kay lives in a city where housing costs $1 per square foot. They have a monthly budget of $1,U, of which they decide to
4. Kay lives in a city where housing costs $1 per square foot. They have a monthly budget of $1,U, of which they decide to allocate $50!] to rent a 50G sqft. apartment and spend te other $5M on consumption. A generous relative offers Kay a deal on a 4m sqft. apartment for only $23!] per month, which they accept. What is the equivalent variation of this transfer for Kay, in dollars per month? [Select one) (a) More than $3342]: Kay gets utility from both consumption and the new apartment. {b $33!]: That is how much more Kay can consume with the new cost of rent. (c $25!]: That is how much less Kay's old bundle would have cost at the new prices. 3 l (d) Between $3 and $251]: Kay would substitute away from her old bundle at the new prices. (e) $23!]: That is the additional cost of Kay's new bundle at the old prices. 3 [f Between SD and $213!]: Kay may prefer to substitute away from her new bundle at the old prices. [g] $13!]: That is the diEerential cost of the new apartment at the old prices. (h) $12]: The new apartment is like an infrarnarginal transfer to Kay. (i) We would need to know Kay's marginal rate of substitution to calculate the EV. {j} We cannot quantify the value because utility is ordinal, not cardinal
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