The UK is currently building HS2, a new railway that runs from London to the north of England. Jordan lives in Ponyforth and buys his vegetables from a local farm. Unfortunately, HS2's route goes through the local farm. If HS2 goes ahead then due to the reduction in the amount of land, the farm will need to charge a higher price for the vegetables. Using diagrams by plotting vegetables in the horizontal axis and other commodities in the vertical axis, answer the following three questions assuming that the price of other commodities is equal to one. If HS2 goes ahead then how much will the UK Government need to pay Jordan to ensure that he is as well off as he was before? What is the most that Jordan would pay to the UK Government for them not to build HS2 through the farm? Which of (a) or (b) relates to compensating variation and which relates to equivalent variation?
The UK is currently building HS2, a new railway that runs from London to the north of England. Jordan lives in Ponyforth and buys his vegetables from a local farm. Unfortunately, HS2's route goes through the local farm. If HS2 goes ahead then due to the reduction in the amount of land, the farm will need to charge a higher price for the vegetables. Using diagrams by plotting vegetables in the horizontal axis and other commodities in the vertical axis, answer the following three questions assuming that the price of other commodities is equal to one. If HS2 goes ahead then how much will the UK Government need to pay Jordan to ensure that he is as well off as he was before? What is the most that Jordan would pay to the UK Government for them not to build HS2 through the farm? Which of (a) or (b) relates to compensating variation and which relates to equivalent variation?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:The UK is currently building HS2, a new railway that runs from London to the north of
England. Jordan lives in Ponyforth and buys his vegetables from a local farm.
Unfortunately, HS2's route goes through the local farm. If HS2 goes ahead then due
to the reduction in the amount of land, the farm will need to charge a higher price for
the vegetables. Using diagrams by plotting vegetables in the horizontal axis and
other commodities in the vertical axis, answer the following three questions
assuming that the price of other commodities is equal to one.
If HS2 goes ahead then how much will the UK Government need to pay
Jordan to ensure that he is as well off as he was before?
What is the most that Jordan would pay to the UK Government for them not to
build HS2 through the farm?
Which of (a) or (b) relates to compensating variation and which relates to
equivalent variation?
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