Question 1: Suppose you get utility from two normal goods: the water quality of your town lake W and a com osite ood C . You have income Y0 and the rice of the com osite ood is $1. Cur p g 1 1 P P g rently, the water quality of the lake is at level W\". Using this information, answer the following questions. Part (a) Given the current situation, illustrate your consumption bundle of water quality, W, and com posite good, 0, on the below graph. Label this bundle \"a" and the associated level of utility \"U0\" . Part (II) A group of developers are proposing to construct several hotels near the lake, which will in terfere with the stream that feeds the lake and will lower the water quality to W\". Aside from aecting water quality, the hotels (or their construction) will provide no other benets or costs to you. On the same graph, illustrate the new consumption bundle that would arise if the project is completed. Label this \"b\" and the associated level of utility \"U1\". If the project is completed will your welfare [utility level) increase or decrease? If no money transfers are made, are you in favor of the project? Part (c) Suppose the decision of whether or not to approve the project is left up to you and that you are the only person that gets utility from the lake in any respect. What is the minimum amount of money the developers could offer you in order to convince you to approve their project? Illustrate this value on your graph. Is this value the compensating surplus or the equivalent surplus associated with the project? Part (121) Now suppose the decision of whether or not to approve the project is left up to the developers. What is the maximum amount of money that you would be willing to offer the developers in order to try to persuade them to abandon their project? Illustrate this quantity on your graph. Is this value the compensating surplus or the equivalent surplus associated with the project? C($) W