Assignment task: Suppose you have data from a travel cost methodology survey. The data tell you that, when travel cost is greater than or equal to $20, no trips are taken to a recreational site, and when, travel costs are zero, 100 trips are taken per year to a recreational site.
a) Draw a travel cost demand curve based on these data (assume that it is linear). Label completely.
b) Calculate the consumer's surplus ($) for a typical user whose travel costs are equal to $5.
c) Now suppose that the government is thinking about spending money to improve the amenities at the recreational site. This would result in a shifting upward of the travel cost demand curve. The new demand curve would have the following characteristics: linear; when travel cost is greater than or equal to $25, then no trips are taken; and when travel costs are zero, 125 trips are taken per year to the recreational site. Add this new demand curve to your diagram in a).
d) Now, calculate the gain in consumer surplus from the improvements at the recreational site for the typical user. Assume, that this user will not change the number of trips taken as a result of the improvements
e) Recalculate the gain in consumer's surplus for the typical user but now assume that they increase the number of trips taken (note, this user is still only paying $5 in travel costs)
f) Explain how a government could use the information about the gain in consumer's surplus in its future planning over possible improvements to recreation in the region.