Homework Help is Here – Start Your Trial Now!
Business
Economics
Compute the utility of group 1 from driving when group 2 takes public transport: U₁(x₁=d, x₂ = p). Compute the utility of group 1 from taking public transport when group 2 takes public transport: U₁(x₁ = P, X₂ = p). Does group 1 prefer to drive or take public transport, given that group 2 takes public transport?

Compute the utility of group 1 from driving when group 2 takes public transport: U₁(x₁=d, x₂ = p). Compute the utility of group 1 from taking public transport when group 2 takes public transport: U₁(x₁ = P, X₂ = p). Does group 1 prefer to drive or take public transport, given that group 2 takes public transport?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
See similar textbooks
icon
Related questions
Question
Following the broad overview of potential costs and benefits of the policy, we will now analyse the main objective of the policy using an economic model. Consider two groups of citizens, each group can either choose to drive x = d or to take public transport x = p. The first group, group 1, enjoys driving and has the following 4 benefit from using their car within the ULEZ area: B₁(x₁ = d) = 18. The second group, group 2, does not enjoy driving and has a benefit of B₂(x₂ d) = 0 from driving their car. If they don't drive, citizens can use public transport to get around. The benefit of doing so is the same for both groups: B₁(x₁ = p) = B₂(x₂ = p) = 10. Both groups drive cars that do not meet the ULEZ requirements and therefore create excessive pollution. = For simplicity, we consider that pollution, and the health problems it induces, are the main cost of driving. This cost is imposed on both groups and is equal to C/(x₁ = d, x₂= d) = 10 if both groups drive, C₁(x₁ = p, x₂ = d) Ci(x₁ d, x₂ = p) = 5 if only one group drives and C/(x₁=p, X₂ = p) = 0 if neither group drives, where i represents either group 1 or group 2. The utility of each group from choosing action x; is equal to the benefits minus the costs: U(X₁, Xxj) = Bi(xi) — Ci(Xi, X), where i E {1,2}. 1. Compute the utility of group 1 from driving when group 2 takes public transport: U₁(x₁=d, x₂ = p). Compute the utility of group 1 from taking public transport when group 2 takes public transport: U₁(x₁=p₂ x₂ = p). Does group 1 prefer to drive or take public transport, given that group 2 takes public transport?
Transcribed Image Text:Following the broad overview of potential costs and benefits of the policy, we will now analyse the main objective of the policy using an economic model. Consider two groups of citizens, each group can either choose to drive x = d or to take public transport x = p. The first group, group 1, enjoys driving and has the following 4 benefit from using their car within the ULEZ area: B₁(x₁ = d) = 18. The second group, group 2, does not enjoy driving and has a benefit of B₂(x₂ d) = 0 from driving their car. If they don't drive, citizens can use public transport to get around. The benefit of doing so is the same for both groups: B₁(x₁ = p) = B₂(x₂ = p) = 10. Both groups drive cars that do not meet the ULEZ requirements and therefore create excessive pollution. = For simplicity, we consider that pollution, and the health problems it induces, are the main cost of driving. This cost is imposed on both groups and is equal to C/(x₁ = d, x₂= d) = 10 if both groups drive, C₁(x₁ = p, x₂ = d) Ci(x₁ d, x₂ = p) = 5 if only one group drives and C/(x₁=p, X₂ = p) = 0 if neither group drives, where i represents either group 1 or group 2. The utility of each group from choosing action x; is equal to the benefits minus the costs: U(X₁, Xxj) = Bi(xi) — Ci(Xi, X), where i E {1,2}. 1. Compute the utility of group 1 from driving when group 2 takes public transport: U₁(x₁=d, x₂ = p). Compute the utility of group 1 from taking public transport when group 2 takes public transport: U₁(x₁=p₂ x₂ = p). Does group 1 prefer to drive or take public transport, given that group 2 takes public transport?
Expert Solution
steps

Step by step

Solved in 3 steps

SEE SOLUTIONCheck out a sample Q&A here
Blurred answer
Follow-up Questions
Read through expert solutions to related follow-up questions below.
Follow-up Question

2.  Compute the utility of group 2 from driving when group 1 drives: U2(x2 = d, x1 = d). Compute the utility of group 2 from taking public transport when group 1 drives: U2(x2 = p, x1 = d). Does group 2 prefer to drive or take public transport, given that group 1 drives?

Solution
Bartleby Expert
SEE SOLUTION
Knowledge Booster
Public Good
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education
SEE MORE TEXTBOOKS