Summer Island in Great Lake is located about a half-mile off shore from Bay City. Currently, people live on the Island only during the six-month period from May through October when the lake is free of ice. Bay City is considering constructing an ice bridge that would link Summer Island to Bay City during the other half of the year. Bay City estimates that the cost of building temporary ramps in November, plowing and patrolling the ice during its use, and removing the ramps at the end of winter would cost $100,000. The mayor would like your advice about how to think about the benefits of the project. Specifically, she would like you to address the following:
a. The ice bridge would open up Summer Island to cross-country skiing. Currently, the nearest cross-country skiing trails to Bay City require a one-hour drive. What information would you need to develop a conceptual sketch of the benefits of making cross-country skiing available? How would you recommend that the benefits of the increased accessibility of cross-country skiing be measured? Why?
b. The owners of the local sporting goods stores expect that the ice bridge would result in an increase in sales of cross-country ski equipment of about $80,000 annually. Under what conditions, if any, would these additional purchases alter your estimate of benefits from increased access to cross-country skiing?
c. During the non-summer months, there are quite a few residents of Bay City who would like to work at jobs paying at least the current minimum wage but cannot find jobs. About $50,000 of the cost of constructing and maintaining the ice bridge would go to funding jobs for people who otherwise would be unemployed. In general, what are the possible methods for estimating the social costs of a project when the government hires those that were previously unemployed? How, if at all, is this relevant to estimating the social costs of this project?