Suppose two neighborhoods (A andB)have identical housing,but neighborhood A has a strictly enforced deed restriction that prohibits homeowners from parking junk cars in the front yard.If houses in neighborhood A sell for $105,000 and houses in neighborhood B sell for $100,000,how would an economist value the external cost of visible junk cars,per house?
A) $205,000
B) $105,000
C) $100,000
D) $5,000
E) None of the above answers is correct.

Question

Quizplus · Accepted Answer

The economist would value the external cost of visible junk cars as the difference in housing prices between neighborhoods A and B, which is $5,000. This is because the only difference between the two neighborhoods is the presence of the deed restriction, which indicates that visible junk cars have a negative impact on the perceived value of a house.

Suppose Two Neighborhoods (A AndB)have Identical Housing,but Neighborhood a Has