Paul owns a home on the top of a hill and enjoys an unobstructed view of a large wooded area.The view was a large factor in his decision to buy the house and Paul values his view at $5000 per month.Sid purchases the undeveloped wooded area with plans to build a retail shopping centre.Sid expects to earn $10,000 a month from the shopping centre,which is $3000 more than his next best alternative.
-Refer to the information above.Suppose that Paul rejects the idea of either buying the undeveloped land or paying Sid not to develop the land,and successfully blocks Sid from developing the land by getting the zoning law changed.As a result,
A) Paul's economic surplus will rise.
B) Sid's economic surplus will rise.
C) Paul's economic surplus is unchanged.
D) Sid is no worse off.
E) society is better off.

Question

Quizplus · Accepted Answer

Paul's economic surplus is unchanged because he still has his valued view and does not incur any additional costs. However, Sid's economic surplus is reduced to zero since he is prohibited from developing the land and earning the expected $10,000 per month. Therefore, there is a loss of economic surplus for Sid, but no gain for Paul, and society may not necessarily be better off as the shopping center could have provided employment opportunities and increased economic activity in the area.

Paul Owns a Home on the Top of a Hill