Question 3 The figure shows the housing price (rent) per square foot of houses located at different distances to the employment area (city centre), with and without the consumer substitution effect. Taking point j in the figure as an example, assuming that the household's monthly maximum budget is $800, if the household is living at a distance 10 km to the employment area, the unit commuting cost is $50 per km per month, and the unit price of housing per square foot per month is $0.30. In other words, the household living at point j can afford to live in a 1,000 square feet house, by paying a monthly rent of $300 ($0.30 x 1,000 sf) and a monthly commuting cost of $500 ($50 x 10 km). 3(a) Calculate the maximum house size the household can afford to live at a distance of 5 km to the employment area (point f in the figure).

Question 3 The figure shows the housing price (rent) per square foot of houses located at different distances to the employment area (city centre), with and without the consumer substitution effect. Taking point j in the figure as an example, assuming that the household's monthly maximum budget is $800, if the household is living at a distance 10 km to the employment area, the unit commuting cost is $50 per km per month, and the unit price of housing per square foot per month is $0.30. In other words, the household living at point j can afford to live in a 1,000 square feet house, by paying a monthly rent of $300 ($0.30 x 1,000 sf) and a monthly commuting cost of $500 ($50 x 10 km). 3(a) Calculate the maximum house size the household can afford to live at a distance of 5 km to the employment area (point f in the figure).

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Theory Of Consumer Choice

Section: Chapter Questions

Problem 1PA

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