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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
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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?
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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?

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