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Unformatted text preview: Economics 131 Problem Set #4 November 3, 2009 1 1) Recall the example in the text (p. 101) and also discussed in Lecture of Travis the carpenter who lives and works in Las Vegas, which has high levels of air pollution, and is considering moving to Baggs, Wyoming, which has lower air pollution and lower wages. a. Suppose the quality of life in Las Vegas is worth an extra $3K / yr. to Travis. How would this affect the analysis of his decision to remain in Las Vegas or move to Baggs? (Use the data on p. 101 of the text.) b. Suppose Travis s quality of life in Las Vegas is worth an extra $3K /yr., but only if he is healthy. If he is sick, it isn t worth anything extra. How would this change the analysis of his moving decision? 2) Tom and Lindsey just began working for a used car dealer. They both must decide on one of two pay options. Option #1 pays a guaranteed rate of $200,000/year. Option #2 pays $10,000/year half of the time and $490,000/year the other half of the time. the other half of the time....
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