Question
[PLEASE, can you only answer part D on this question. I think I may have gone wrong on my workings, thank you) A consumer chooses
[PLEASE, can you only answer part D on this question. I think I may have gone wrong on my workings, thank you)
A consumer chooses how much housing (q, measured in square feet) and how much of a composite good (c) to consume to maximise their utility. Their monthly income is 2,500 and they face a commuting cost of t=10 per mile per month. The price of the composite good is normalised to 1 and the price of housing is p=1.25 per square foot.
(a) PLEASE IGNORE - In a diagram, with the quantity of housing (measured in square feet) on the horizontal axis and the quantity of the composite good on the vertical axis, illustrate this consumer's budget constraint and their utility-maximising choice, assuming that they choose to live 5 miles away from the CBD and their utility-maximising quantity of housing is 1,000 square feet.
(b) PLEASE IGNORE - Suppose the household chooses to move further away from the CBD, so they buy a dwelling that is 15 miles from the CBD. Assuming the price of housing doesn't change, illustrate and explain the consumer's new budget constraint and possible utility-maximising choice (assuming all the standard assumptions about consumer preferences hold).
(c) PLEASE IGNORE - Is the outcome you illustrated in b) a locational equilibrium? Why or why not? If not, explain how the price of housing would need to adjust to ensure equilibrium is achieved and how this would affect the consumer's budget constraint.
(d) THIS ONE PLEASE - With the pandemic, many people are now working from home and therefore effectively face a commuting cost of zero. How would your answer above change if the commuting cost were zero? What would this imply about the shape of the house-price curve and the size of houses at different distances from the CBD?
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