HW4 - RishiSanghvi CostBenefitAnalysis Econ421001 HW4...

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Rishi Sanghvi  Cost Benefit Analysis  Econ 4210-01 HW 4 Due: 03/16/2010 Question 1:  (a) ∆Price   $ 0.025/lb to $0.050/lb, ∆Quantity   2.40 lb/p/d to 2.20 lb/p/d  Quantity falls by 0.20 lbs/p/d Gain in benefits = reduction in social costs – lost benefit Total reduction in social cost = ($0.06/lb) X (2.40 lbs/p/d – 2.20 lbs/p/d) = $0.012/p/d Lost benefits (Area under the demand curve) = (.5) X ($0.025) X (0.2 lbs/p/d) + ($0.025) X (0.2  lbs/p/d) = $0.0075/p/d Gain in benefits = $0.012/p/d - $0.0075/p/d = $0.0045/p/d Population = 100,000 people  Annual net benefits  = $0.0045 X 100,000 X 365 =  $164,250. (b)  Q f  = 2.31 lb/p/d P f  = $0.05/lb Constant Elasticity Demand: Q = a*P (b) b = elasticity of demand = -0.053,  a = 1.97 Q = 1.97*P  (-0.053) 1 | P a g e
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Net Benefits per person: NSB/p = ($0.06 -$.025)*(0.09) + ($0.05 - $0.025)*(2.31) - 1.97*P (-0.053)
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This note was uploaded on 04/03/2010 for the course ECON 4210 taught by Professor Donaldvitaliano during the Spring '10 term at Rensselaer Polytechnic Institute.

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HW4 - RishiSanghvi CostBenefitAnalysis Econ421001 HW4...

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