SolutionSketchesforChapter8SuggestedProblems - that is...

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Solution Sketches for Chapter 8 Suggested Problems 1. This is basically in section I.A. There are two cases: one if the crop price is determined locally and one if the crop price is determined globally (exogenous). The change in land prices was talked about in lecture. For wages, think about the local labor market (and assume no effects on local labor supply). There are two farms (firms): one in the clean area and one in the dirty area. When the dirty area gets cleaned up, its productivity increases, which increases that farm’s labor demand. What happens to the wage that it offers? If the price of the crop is determined locally, then the clean area will see a drop in the price of the crop, which may reduce its labor demand. How will this affect the wage
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Unformatted text preview: that is offered on the “clean” farm? How does this change if the crop price is determined globally? 4. Use Figure 8.2. Make sure to use the correct diagram for Unproductive pollution (why is pollution unproductive here?). 6. The main characteristic for the car could just be the manufacturer reported fuel economy. Focus on the theory and estimation of hedonic pricing, p(z), p’(z), and the MWTP. 7. If land is not a factor of production, then in Figure 8.2 we can just draw the firms’ cost curves as vertical lines since they only depend on wage (and pollution). Work through the three different cases for pollution (productive, unproductive, and neutral) and see how the new results differ from the results in the chapter....
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