Determine the demand functions, Econometrics

The town of Dusty View, Saskatchewan has only two residents - Justin and Sarah - and has a water supply shortage in the summer. The municipal water utility charges a break even price of $100 per unit of water but the system capacity is limited to 500 units. Justin and Sarah's marginal utility functions for water in the summer are as follows:

            MU(Justin) = 1600 - 4W

            MU(Sarah) = 1200 - 4W

a)  Determine the demand functions for Justin and Sarah and the total demand for water in Dusty View. Show that there will be a summer water shortage.

b)  Suppose the town decides to increase the price of water until there is no excess demand. Calculate the new price and the gains from trade (individual consumer surpluses and town profit) resulting from this decision.

c)  Now suppose the town decides against using price to ration water and instead allocates the water fairly between Sarah and Justin - 250 units each - and reverts to charging $100 per unit. Assume resale between Sarah and Justin is impossible. Calculate the gains from trade in this case. Why is it better/worse than the solution in b)?

d) Now suppose resale is possible under the 250 unit per person allocation plan. What will be the final result? How does it compare with the result in b)? 

 

Posted Date: 2/27/2013 7:45:12 AM | Location : United States







Related Discussions:- Determine the demand functions, Assignment Help, Ask Question on Determine the demand functions, Get Answer, Expert's Help, Determine the demand functions Discussions

Write discussion on Determine the demand functions
Your posts are moderated
Related Questions
what is the mathematical origin of durbin watson test for autocorrelation

examples of economic relationships

why do we make use of regression analysis in our econometrics analysis

This problem refers to Doughtery's Educational Attainment and Earnings Functions (EAEF) data set, accessible through the course website. This data is a subset of the U.S. National

Your firm will produce widgets for the next 10 years (starting at t=1). Annual revenue from selling widgets is $20,000. Production requires an initial outlay (at t=0) for machin

a. If 10,000 two-liter bottles of Pepsi are currently being demanded in your community each month, and the price increases from $1.90 to $2.10 per bottle, what will happen to quant


Explain the difference among the usual (product moment) correlation and rank correlation. In what situations is it more appropriate to use rank correlation?

A chance sample of visitors to a National Park was interviewed regarding their impressions of the Park.  Of 200 interviewees, 120 said that they would probably make a return visit