A collaborative federal and state program has been proposed in response to acid rain damage in Newport Bay, Maryland. To estimate the incremental benefits of the program, you use the travel cost method based upon the following pre- and post-policy recreational demand functions:
Pre-policy: P = 62 - 0.02V 1 Post-policy: P = 80 - 0.02V 2 ,
where V is the number of visitors (in thousands) and P is the admission fee. Assume the admission fee is set at $20 per visitor. Use this information for any or all of Questions.
-The estimated incremental benefits (in thousands of dollars) associated with this new policy are
A) 2,100
B) 44,100
C) 90,000
D) 45,900

Question

Quizplus · Accepted Answer

The incremental benefits are calculated by finding the difference in consumer surplus between the pre-policy and post-policy demand functions. The change in the intercept from 62 to 80 indicates an increase in consumer surplus, which translates to the estimated incremental benefits.

A Collaborative Federal and State Program Has Been Proposed in Response