Calculate the gain in consumers surplus from improvements

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Reference no: EM133467932

Assignment:

Suppose you have data from a travel cost methodology survey. The data tell you that, when travel cost is greater than or equal to $20, no trips are taken to a recreaonal site, and when, travel costs are zero, 100 trips are taken per year to a recreaonal site.

a) Draw a travel cost demand curve based on these data (assume that it is linear). Label completely.

b) Calculate consumer's surplus ($) for a typical user whose travel costs are equal to $5.

c) Now suppose that government is thinking about spend money to improve the amenies at the recrea:onal site. This would result in a shieing upward of the travel cost demand curve. The new demand curve would have the following characteris:cs: linear; when travel cost is greater than or equal to $25, then no trips are taken; and when travel costs are zero, 125 trips are taken per year to the recrea:onal site. Add this new demand curve to your diagram in a).

d) Now, calculate the gain in consumer's surplus from the improvements at the recrea:onal site for the typical user. Assume, that this user will not change the number of trips taken as a result of the improvements.

e) Recalculate the gain in consumer's surplus for the typical user but now assume that they increase the number of trips taken (note, this user is s:ll only paying $5 in travel costs).

f) Explain how a government could use the informa:on about the gain in consumer's surplus in its future planning over possible improvements to recrea:on in the region.

Reference no: EM133467932

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