Question

An analyst was asked to predict the gross social benefits of building a public swimming pool in Dryville, which has a population of 68,000 people and a median household income of $30,000. The analyst identified 24 towns in the region that already had public swimming pools. She conducted a telephone interview with the recreation department in each town to find out what fee it charged per visit (FEE) and how many visits it had during the most recent summer season (VISITS). In addition, she was able to find each town’s population (POP) and median household income (INCOME) in the most recent census. Her data are as follows:

	VISITS	FEE	INCOME	POP
1	168,590	0	20,600	36,879
2	179,599	0	33,400	64,520
3	198,595	0	39,700	104,123
4	206,662	0	32,600	103,073
5	170,259	0	24,900	58,386
6	209,995	0.25	38,000	116,592
7	172,018	0.25	26,700	49,945
8	190,802	0.25	20,800	79,789
9	197,019	0.25	26,300	98,234
10	186,515	0.50	35,600	71,762
11	152,679	0.50	38,900	40,178
12	137,423	0.50	21,700	22,928
13	158,056	0.50	37,900	39,031
14	157,424	0.50	35,100	44,685
15	179,490	0.50	35,700	67,882
16	164,657	0.75	22,900	69,625
17	184,428	0.75	38,600	98,408
18	183,822	0.75	20,500	93,429

19	174,510	1.00	39,300	98,077
20	187,820	1.00	25,800	104,068
21	196,318	1.25	23,800	117,940
22	166,694	1.50	34,000	59,757
23	161,716	1.50	29,600	88,305
24	167,505	2.00	33,800	84,102

a. Show how the analyst could use these data to predict the gross benefits of opening a public swimming pool in Dryville and allowing free admission.

b. Predict gross benefits if admission is set at $1.25 and Dryville has marginal excess tax burden of 0.25. In answering this question, assume that the fees are used to reduce taxes that would otherwise have to be collected from the citizens of Dryville to pay for expenses incurred in operating the pool.

Answer 1