Consider the small town of Wamego. Every year on the Fourth of July, the city government provides an expansive fireworks show. Bert and Ernie live outside the city limits but on top of a hill overlooking the small town of Wamego. They enjoy the fireworks for free. Assume that the city government has carefully collected preferences on the fireworks show from the city residents. All 10 residents have the same demand: Q=10 - P. MC is constant at $10. Even though they enjoy the fireworks for free, Bert’s demand is Q = 20 - 2*P and Ernie’s demand is Q = 20 - 2*P. Demonstrate that this situation is an example of non-optimal fiscal federalism. What is the current provision of fireworks? What is the optimal number of fireworks? What should be done to improve the efficiency of this situation
Consider the small town of Wamego. Every year on the Fourth of July, the city government provides an expansive fireworks show. Bert and Ernie live outside the city limits but on top of a hill overlooking the small town of Wamego. They enjoy the fireworks for free. Assume that the city government has carefully collected preferences on the fireworks show from the city residents. All 10 residents have the same
Step by step
Solved in 3 steps with 1 images
