Suppose that an environmental amenity, beachfront, increases demand for condos. Demand for condos can be described by the following equations: • Demand for condos in the region without beachfront: Q0 = 200 − 2P • Demand for condos in the region with beachfront: Q1 = 300 − 2P (a) Compute the value of beachfront based on the difference in total willingness to pay if 50 condos are purchased in each region by following these steps: i. Solve for expressions for MW T P for condos in each region. Depict these curves on a graph. ii. Solve for the total willingness to pay for 50 condos with beachfront. Solve for the total willingness to pay for 50 condos
Suppose that an environmental amenity, beachfront, increases demand for condos. Demand for condos can be described by the following equations: • Demand for condos in the region without beachfront: Q0 = 200 − 2P • Demand for condos in the region with beachfront: Q1 = 300 − 2P
(a) Compute the value of beachfront based on the difference in total willingness to pay if 50 condos are purchased in each region by following these steps:
i. Solve for expressions for MW T P for condos in each region. Depict these
ii. Solve for the total willingness to pay for 50 condos with beachfront. Solve for the total willingness to pay for 50 condos without beachfront. Depict this on the graph you drew in (a).
iii. Solve for the value of beachfront. Depict this on the graph you drew in (a).
(b) Suppose the supply for condos in each region is given by MC = Q and you cannot observed supply and demand directly. That is, you can only observe the market prices and quantities in each region. Explain how would you estimate the value of beachfront and how you might expect it to differ from your results in (a).
(c) What are two potential limitations to valuing the beachfront using hedonic pricing? Explain.
Step by step
Solved in 2 steps with 1 images
