Part 11I. Hedonics and incidence: In class we introduced a case where the incidence (who gains and who loses) from changes in environmental guality could be surprising because of the resorting in a new equilibrium. In this example, we continwe with the same type of setup: Neighborhood A will have a price of 0 regardless of the number of people living there, whereas the price equals the rumber of households in all other neighborhoods. The utility of a person living in a neighborhood is [ = a B0} P. There are two types, who are describe below: e Number Hatfields 4 12 MeCoys 1 2 6. Fill in the equilibrium prices that would result in this setup. (2 points) 7. You should have concluded that the MeCoys do not live in neighborhood 1. Suppose that there is an improvement in environmental quality in neighborhood D by 1 unit. Find the new equilibrium prices and put them in the table. Then, indicate what is the change in surplus for a McCoy household as a result of the improvement in neighborhood D7 Write your answer as a numerical value, with a negative number indicating a drop in surplus and a positive number indicating an improvement. {3 points) You do not need to write out an explanation, but ask yourself why this happened. | Eq P | Al D o | ol ] ole L] - 3. Going back to the original equilibrium, you should have found that the Mccoys only live in B or C. If so, then you might expect that improving the environmental quality in neighborhood B or C would benefit the Mccoys. Consider the new allocation below, where the environmental quality in neighborhoods B and Care brought up to the standard of neighborhood D. Find the new equilibrium values and put them in the table. EQ P A B C D 9. Compared to the original allocation in the first question (EQs = EQc = 2 and EQp = 4), who benefits? (1 point) You do not need to write out an explanation, but ask yourself why this happened. O Only the Mccoys gain (surplus increases) O Only the Hatfields gain (surplus increases) O Both the Mccoys and Hatfields gain (surplus increases for both) O Neither the Mccoys nor the Hatfields gain (surplus increases for neither)