The city of Toledo is considering adding additional storm water storage facilities so that it will never have sewage overflows. Economists have monetized the following effects over the expected useful life of the storm water storage facilities. Assume these are the only relevant effects (in millions of dollars): Federal grant: Construction and maintenance costs: $7 Toledo residents' total willingness to pay: $4 All other's total willingness to pay: $5 Assume only the city of Toledo residents have standing. Anyone outside of the city does not have standing. The "Federal grant" is the dollar amount the city of Toledo can get from the federal government to help cover the cost of the construction. The "Federal grant" can be thought of as a federal subsidy for the local project. a. Conduct a simple benefit-cost analysis for the city. Is it efficient for the city of Toledo to build the storm water storage facilities? b. Considering positive externalities from the project beyond the city of Toledo, what is the maximum efficient amount for the federal grant subsidy? c. If everyone in the nation has standing, is it efficient for the city of Toledo to build the storm water storage facilities?

The city of Toledo is considering adding additional storm water storage facilities so that it will never have sewage overflows. Economists have monetized the following effects over the expected useful life of the storm water storage facilities. Assume these are the only relevant effects (in millions of dollars): Federal grant: Construction and maintenance costs: $7 Toledo residents' total willingness to pay: $4 All other's total willingness to pay: $5 Assume only the city of Toledo residents have standing. Anyone outside of the city does not have standing. The "Federal grant" is the dollar amount the city of Toledo can get from the federal government to help cover the cost of the construction. The "Federal grant" can be thought of as a federal subsidy for the local project. a. Conduct a simple benefit-cost analysis for the city. Is it efficient for the city of Toledo to build the storm water storage facilities? b. Considering positive externalities from the project beyond the city of Toledo, what is the maximum efficient amount for the federal grant subsidy? c. If everyone in the nation has standing, is it efficient for the city of Toledo to build the storm water storage facilities?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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