Suppose that early in a year, a hurricane hits a town in Florida and destroys a substantial number of homes. A portion of this stock of housing, which had a market value of $104 million (not including the market value of the land), was uninsured. The owners of the residences spent a total of $5 million during the rest of the year to pay salvage companies to help them save remaining belongings. A small percentage of uninsured owners had sufficient resources to spend a total of $14 million during the year to pay construction companies to rebuild their homes. Some were able to devote their own time, the opportunity cost of which was valued at $4 million, to work on rebuilding their homes. The remaining people, however, chose to sell their land at its market value and abandon the remains of their houses. What was the combined effect of these transactions on GDP for this year? $ million. (Hint: Which transactions took place in the markets for final goods and services?) The loss in national welfare GDP, because it is in the market place.

Suppose that early in a year, a hurricane hits a town in Florida and destroys a substantial number of homes. A portion of this stock of housing, which had a market value of $104 million (not including the market value of the land), was uninsured. The owners of the residences spent a total of $5 million during the rest of the year to pay salvage companies to help them save remaining belongings. A small percentage of uninsured owners had sufficient resources to spend a total of $14 million during the year to pay construction companies to rebuild their homes. Some were able to devote their own time, the opportunity cost of which was valued at $4 million, to work on rebuilding their homes. The remaining people, however, chose to sell their land at its market value and abandon the remains of their houses. What was the combined effect of these transactions on GDP for this year? $ million. (Hint: Which transactions took place in the markets for final goods and services?) The loss in national welfare GDP, because it is in the market place.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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