Economics 3220 Lecture Notes - Coliform Bacteria, Air Purifier, Demand Curve
Document Summary
These expenditures are observable from market transactions. The money they spend approximated their wtp to avoid health damages due to pollution. Step 1: describe what pollutant is to be reduced in what geographic region and what preventative expenditure is considered. Step 2: collect data on expenditures made to prevent deterioration of environmental quality in two regions: one with high pollutant and one with low pollutant. Step 3: estimate market demand curves of the preventative goods with the collected data from step 2 for each region using regression analysis. Step 4: calculate consumer surplus for each region using market demand curves estimated in step 3. Change in cs between two regions would be the benefits of pollution reduction between two regions. Step 1: describe pollutant, regions and expenditures: suppose we are considering preventive expenditures of household in two cities on home air purifiers with different levels of ozone. City 1 has high ozone, so high demand is expected for air purifiers.
