Please help me with this economics problem. Thank you!
Sally gets utility from both consuming market goods, denoted as c, and from shing at the local lake. The quality of shing at the lake depends on the water quality, denoted in. As water quality increases so does the size of the sh and the sh population (making them easier to catch). Therefore, the higher the water quality the more enjoyment Sally gets from shing. Assume that Sally's utility function has the form a (c, w) = 11.! In (c) . (4) To keep things simple, assume that Sally earns an income of m which she spends solely on consumption of goods, such that c = m/p where p is the price of consumption. a. What is Sally's expenditure function associated with reaching utility level it? b. What is Sally's willingness to pay for a policy that improves water quality from w to 10" but also increases prices from p to p'? (Hint: From the class lecture, what welfare metric represent a willingness to pay for an environmental improvement and what is the equation that would give you that value in this example?) Now assume that currently Sally's income is m = 100, the price of consumption is p = 1, and the water quality is w = 2. The local govermnent is considering a cleanup effort at the lake, which will improve water quality by 1% to w' = 2.02 but will be funded by a local sales tax that increases the price of consumption by 1% to p' = 1.01. c. What is Sally's willingness to pay for the results of this policy? d. What is Sally's willingness to accept the current pollution level and not have the policy enacted? e. 1Why do these two values differ? Sally's neighbor Bob will also be impacted by this policy. Bob's income is also as = 100, and faces the same price of consumption. However, Bob prefers the consumption of goods relative to shing more than Sally, such that his utility function is u(c,w) =wln (1.1 X c). (5) f. What is Bob's willingness to pay for the results of this policy? g. Assuming Bob and Sally are the Dilly two people aected by this policy, is it a potential Pareto improvement? Explain your