Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

I need help with this question. Please answer all parts. Thank you Ireland is planning to build a state of the art highway from Galway

I need help with this question. Please answer all parts. Thank you

Ireland is planning to build a "state of the art" highway from Galway to Newtown. University econometricians have determined that the aggregate demand for highway services between the two towns is represented by x = 100, 000 20, 000p, where x measures the number of cars and p the toll. The total cost of the highway is estimated in 300,000 dollars. Driving on the highway will be free. The prime minister has decided that the project will go ahead if the consumers' surplus covers at least the total costs (the underlying assumption he is making is that preferences are quasilinear over highway services and money spent on all other goods).

(a) Will the highway be built?

(b) Due to Newtown's promotion campaign "Come and See the City by the Sea," which would cost 10,000 dollars, demand would double to x = 200, 000 40, 000p. Would the project go ahead if the campaign is carried out?

(c) The prime minister is considering to introduce a toll on this new highway. If he does, the social welfare function that he would use for evaluating the viability of the project is the sum of consumers' surplus and Government proXt, the latter deXned as toll revenue minus total cost. How high could the toll be in order for the project to be viable?

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

Bank Management

Authors: Timothy W Koch, Mark S Cracolice

7th Edition

1111804265, 9781111804268

More Books

Students also viewed these Economics questions

Question

Excel caculation on cascade mental health clinic

Answered: 1 week ago