consider a developer that has 96,000 square ft of vacant land ready for building houses in a neighborhood that is desirable because of its superior schools. There are two types of households: lower income (L) and higher-income (H). Each type L household is willing to pay $250,000 to live in the neighborhood, and each H is willing to pay $500,000. The preferred lot size is 6,000 square feet for type L, and 16,000 square feet for type H.

a. What is the willingness to pay per square feet for each household type?

b. If there are no restrictions on lot sizes, to which type of household will the developer want to sell the vacant land?

c. Suppose the existing neighbors are considering whether to set a minimum lot size with the goal of excluding the lower-income households. How big would the minimum lot size have to be for the willingness to pay per square feet for type L to be the same as the willingness to pay per square feet for type H?

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Determining Land Use Based on Household Types a Willingness to Pay per Square Foot Lower Income L Wi... View the full answer