It is generally true that the costs of market distortions increase at an increasing rate. You can prove this robust conclusion yourself. Consider the effects of zoning rules or of a greenbelt which restrict how land is used. In this social cost-benefit calculation, ignore the effects of externalities and any shift in the WTP functions associated with the government policy. (If you knew them also then you could determine whether the greenbelt is optimally located; that is an interesting-but-different question with slightly more complicated arithmetic.) - Suppose that the willingness to pay for land is $1000 per hectare (ha.) everywhere if used for farming. The willingness to pay for land used for residential purposes depends on the distance (d, in km.) from the CBD (i.e. d= 0): WTPR= 2000- 20 d. i)

1-Find d which would be the boundary of the suburban fringe of the city if land use was determined in a free market.

2- Find d which would be the boundary of the suburban fringe of the city if land use was determined in a free market.

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