During Droughts,cities Often Impose Water Use Restrictions on Consumers

question 3

Essay

During droughts,cities often impose water use restrictions on consumers.Suppose a representative consumer has preferences for Water (W)and other goods (X)given by the utility function:
U(W,X)= WX.
Suppose the price of other goods is $1 and the price of water is initially 50¢.The consumer has a budget of $50/week.
a.How much water will the consumer purchase each week?
b.Suppose the government imposes a quota on water use of 50 units/week.Show that the quota reduces the representative consumer's utility.
c.By how much does the quota harm the representative consumer? Specifically,compute the equivalent variation of the quota.

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Definitions:

Hyperventilating

Breathing at an abnormally rapid rate, leading to a decrease in carbon dioxide levels in the blood.

Ventilation

The process of providing fresh air to a space or the exchange of air to remove stale air, crucial for maintaining healthy indoor environments.

Lungs

Organs located in the chest on either side of the heart that enable the respiration process by exchanging oxygen and carbon dioxide.

Airway Obstruction

A blockage in any part of the airway that impedes normal breathing, potentially life-threatening if not promptly treated.