Suppose housing (H) and air quality (A) are the only two things entering Jose's utility which has the form U(H,A) = A*H . Suppose Jose's income is $10 and the price of housing is $2.
a) If air quality is A=2 how much housing will Jose purchase? Sketch his indifference curve and budget line.
b) Suppose air quality rises to A= 4 Plot Jose's new indifference curve and new consumption point.
c) How much would Jose be willing to pay to increase air quality from 2 to 4?