Question
Answer each of the following questions by supporting your work with a properly labeled graphs that reflect your calculations. a. The municipality of Muscat is
Answer each of the following questions by supporting your work with a properly labeled graphs that reflect your calculations.
a. The municipality of Muscat is planning to a huge monument, buying marble from the domestic market, which is efficient. If and independent study has previously estimated the local demand and supply of marble as= 25 0.2and= 5 + , respectively. If the demand due to this project is expected to change to become= 49 0.2(the quantity is measured in square meters and the price in dollars):
- Calculate the total surplus in the marble market before the project.
- What is the amount of marble that the project is estimated to purchase, and how much of that amount is bid away from private consumption?
- What is the value of the change in the total surplus caused by this project?
- By how much will budgetary expenditures in this market overestimate/underestimate
- the true social cost of this project? (be specific of whether it over or underestimated the cost).
- Show that you can account for the divergence between budgetary expenditures and true social costs by means of shadow pricing.
b. Given that land available for the project in Muscat is in fixed supply of 30000 square meters, and the demand for land is= 10000 10if the price of land is measured in dollars too:
- What is the amount of budgetary expenditure that shall be allocated to the project?
- Show how shadow pricing may account for the divergence between budgetary expenditures and true social costs in this case.
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