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:

Contra-Asset

A contra-asset account is an asset account where the account balance is a negative amount. It's used to offset the value of the asset account it is associated with, such as accumulated depreciation.

Cash Register Tapes

Physical or electronic records produced by cash registers, detailing each transaction made within a business.

Cash Short

A situation where the recorded amount of cash does not match the actual amount of cash available, often indicating errors or theft.

Cash Over

A situation where the amount of cash on hand is more than what was expected or reported, often requiring investigation.