Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Figure 2 shows a two-consumer water market. Consumer 1's marginal WTP for water is MB1=120-Q1, while Consumer 2's marginal MTP for water is: MB2=80-Q2. Because

Figure 2 shows a two-consumer water market. Consumer 1's marginal WTP for water is MB1=120-Q1, while Consumer 2's marginal MTP for water is: MB2=80-Q2. Because water is scarce, it is rationed. Each consumer receives a 60 unit allotment each week.

13. What is Consumer 1's marginal WTP for the 60th unit of water consumed?

14. What is Consumer 2's marginal WTP for the 60th unit of water consumed?

15. Suppose the water authority issues these consumers 60 coupons each which entitle the consumers to 60 units of water. However, these coupons can be traded. So one consumer can buy coupons from the other consumer, in which case, the holder of the additional permits can consume more water (for example, 2 extra units if 2 more coupons are purchased), while the coupon seller must consume less (for example, 2 units less if two coupons are sold). Based on this information, how many coupons will be traded in this market? 120Q1 = 80-.5Q2 16. Suppose the market price of coupons settles at the equilibrium WTP at which trading ceases. What will be the market price of the coupons, and the value of the consumers WTPs in equilibrium?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Economy Of Cities

Authors: Jane Jacobs

1st Edition

039470584X, 9780394705842

More Books

Students also viewed these Economics questions

Question

How easy the information is to remember

Answered: 1 week ago

Question

The personal characteristics of the sender

Answered: 1 week ago