# Econ 522 HW 1 - Harry Roth Econ 522Homework#1Due Professor...

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Harry Roth Econ 522—Homework #1—Due 2/6/13 Professor Dan Quint QUESTION 1 – Efficient Allocation I own a plot of land in northern Wisconsin, on which I vacation. My next-door neighbor wants my land as well, to expand his own house. The value of the land to me is \$150,000. (That is, I would be indifferent between keeping the house, and losing the house but having \$150,000.) The value of the land to my neighbor is \$275,000. Which of the following are Kaldor-Hicks improvements? (i) My neighbor buys my land for \$200,000 (ii) My neighbor buys my land for \$275,000 (iii) My neighbor pressures the town council to force me to sell him the land for \$125,000 (iv) My neighbor, while drunk, buys my land for \$350,000 All four situations show that the winner’s profit is greater than the loser’s loss, therefore each of them increase efficiency and can be classified as a Kaldor-Hicks Improvement.
QUESTION 2 – Efficient Production Upon graduation, you realize you have three options: you can take a job as a computer programmer, take a job as a coal miner, or remain unemployed and play video games all day. As a computer programmer, you would create value of \$2,000 per week for your employer, and receive disutility of \$1,000 per week relative to playing video games. (To put it another way, at a