University:
University of Houston
Course:
FINA 4330 | Corporate Finance
Academic year:

2023
Views:

73

Pages:

6
Author:

blakestar2o1o

Consumer Surplus  Consumer surplus along with aggregate profits allow us to evaluate: 1) Costs and benefits of different market structures 2) Public policies that alter the behavior of consumers and firms Example: The Value of Clean Air  Air is free in the sense that we need not pay to breathe it.  The Clean Air Act was amended in 1970.  Question: Were the benefits of cleaning up the air worth the costs? Example: The Value of Clean Air  People pay more to buy houses where the air is clean.  Data for house prices among neighborhoods of Boston and Los Angeles were compared with the various air pollutants. Valuing Clean Air Value ($ per pphm 2000 of reduction) 1000 0 5 NOX (pphm) 10 Pollution Reduction Valuing Clean Air Value ($ per pphm 2000 of reduction) 1000 0 5 NOX (pphm) 10 Pollution Reduction Valuing Clean Air Value ($ per pphm 2000 of reduction) A 1000 0 5 The shaded area gives the consumer surplus generated when air pollution is reduced by 5 parts per 100 million of nitrous oxide at a cost of $1000 per part reduced. NOX (pphm) 10 Pollution Reduction

Individual and Market Demand 9

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