The City of Gotham used to be crime-ridden. Since the city government cooperated with Batman, the...

Question

The City of Gotham used to be crime-ridden. Since the city government cooperated with Batman, the crime rate has dropped dramatically. Suppose people in general likes low crime rates,
although the crime rate is irrelevant for a firm’s productivity.
Further, assume that Gotham specializes in industries that DO NOt benefit from agglomeration. As the crime rate declines,
Suppose all residents of Gotham full time and each resident rents an apartment. The wage rate for each worker reduces by 1,000
dollars each month and the rent increases by 500 dollars. Can you say anything about how much do residents of Gotham value the lower crime rate?

Answer 1

Wage rates are reducing each month and

Conversly, rent increases by half of wages every month.

In this scenario , in few months the rent will surpass wages and it will lead to negative mark I savings .

The demand for crime free Gotham by the citizens is not impacted by the wages or rent incurred to them . So it is highly or near perfectly inelastic with the costs associated with it. As the demand for less crime rates remains the same.

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