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A wide range of public projects require land. The government of Ontario recently received funds under the federal infrastructure program to build two new soccer stadiums in the greater Toronto area. To build these sport facilities, the government needs to buy land. The market for land in this region is competitive.
The initial private sector demand for this land is given by the following function:
D0 =15,750 – 0.75 P
Where, D is quantity demanded in acres and P is measured in dollars per acre. The public demand for land driven by federal infrastructure program shifts the demand function for this land to:
D1= 20, 750 – 0.75 P
The supply of land is fixed at 800 acres and does not change due to change inthe price of land. So, the supply function is:
S = 800
(i) Determine the price at which the government would purchase land, the quantity of land in acres it will purchase and the total amount of money it will spend to purchase land.
(ii) Determine the cost of this resource from society’s point of view. Explain your results.
(iii) Would it be appropriate to use total cost of land to represent the opportunity cost of this resource from society’s point of view? Explain
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