Governor Walker is frustrated that so many students who receive subsidized education in the uw system move to Chicago after graduating. One recommendation from a big shot at UW-Madison is to designate a 5 by 5 mile area in Milwaukee. Students who move to this zone and work in Milwaukee after graduation will receive tax credits worth 10,000 per year for a few years after graduation.
a) You are told that students demand for housing in the zone is very elastic (ND=-4) but that it is somewhat difficult to add new housing (ns=1). From an economic standpoint, how much of the $10,000 would go to students moving to the zone. How much would go to landlords?
b) if rent in the zone would have been $10,000 per year without the subsidy, and 20,000 students would have lived in the zone without the subsidy, how many students will live in the zone if the subsidy is introduced?
c) some recent research has suggested that college educated residents generate positive externalities to cities. How large would this positive externality need to be (per student) to justify this policy (hint: compare the program's dead weight loss to the number of new graduating students attracted to the zone)?