Please show graphically: (a) In the diagram below, show and explain the initial level of forest recreation area (FRA) when there is no price charged for using it (i.e., it is free). Show/explain the total willingness to pay (WTP), consumer surplus (CS), producer surplus (PS), and social welfare (SW) for the initial WQ level. (b) In a new diagram, show what happens to WTP, CS, PS, and SW as FRA deteriorates (e.g., the supply of FRA becomes smaller from development). Then in another diagram, show/explain what happens to WTP, CS, PS, and SW as population grows. (c) Suppose a perfectly competitive market was created for FRA. In a new diagram, show/explain what happens to the FRA level, Price, WTP, CS, PS, and SW. Compare your answers to part (a). (d) Suppose that, instead of a market for FRA, the government regulated supply at the same level that would occur in a perfect market. Show the total benefits and costs of this regulation (moving from part a to part d). Here, Benefits = increased area under the demand curve, and Costs = increased area under the supply curve. What are the net benefits?
Please show graphically:
(a) In the diagram below, show and explain the initial level of forest recreation area (FRA) when there is no
(b) In a new diagram, show what happens to WTP, CS, PS, and SW as FRA deteriorates (e.g., the supply of FRA becomes smaller from development). Then in another diagram, show/explain what happens to WTP, CS, PS, and SW as population grows.
(c) Suppose a
(d) Suppose that, instead of a market for FRA, the government regulated supply at the same level that would occur in a perfect market. Show the total benefits and costs of this regulation (moving from part a to part d). Here, Benefits = increased area under the demand curve, and Costs = increased area under the supply curve. What are the net benefits?
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