A company mines 330,000 tons of coal per year in a rural county. The coal is worth ​$ 75 per ton. The average price for a​ 2,000-square-foot house with three bedrooms more than 20 km away from the mining site in this country is ​$ 220,000. The average price for a​ similar, 2,000-square-foot house with three bedrooms within 4 km of the mine is 4 percent lower. Using comparative​ statics, what is the effect of mining on home prices in this​ county? Mining changes the price of a​ 2,000-square-foot home​ (with three​ bedrooms) by ​$ negative (_______)

A company mines 330,000 tons of coal per year in a rural county. The coal is worth ​$ 75 per ton. The average price for a​ 2,000-square-foot house with three bedrooms more than 20 km away from the mining site in this country is ​$ 220,000. The average price for a​ similar, 2,000-square-foot house with three bedrooms within 4 km of the mine is 4 percent lower.

Using comparative​ statics, what is the effect of mining on home prices in this​ county?

Mining changes the price of a​ 2,000-square-foot home​ (with three​ bedrooms) by ​$ negative (_______)

 

 

Answer:

The effect of mining on home prices is negative as people do not like to live near mines as they are more polluted.

Mining changes the price of ……… by $negative 220,000×4%=8800

Reason

The price decreases the price 4%, so multiplying by the price of home, we can get the absolute value.

Asked on February 13, 2018 in economics.
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