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 $5,000 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 $3,000 more than his next best alternative.
-Refer to the information above.Assuming development of the land reduces the value of Paul's view to zero,then
A) Paul's consumer surplus will not change.
B) Paul will be worse off.
C) Sid will offer to compensate Paul for his loss.
D) Paul will be better off.
E) Paul's consumer surplus will rise.

Question

Quizplus · Accepted Answer

If the development of the land reduces the value of Paul's view to zero, then Paul will be worse off as he is losing the value he placed on his view, which was $5,000 per month. There is no indication that Sid will offer to compensate Paul for his loss, and Paul's consumer surplus will decrease as he is now getting less value from his home.

Paul Owns a Home on the Top of a Hill