Answered: Consider two consumers with preferences…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider two consumers with preferences

Where Tⁱ is the tax levied in jurisdiction i and Gⁱ is public good provision. Assume a² > a¹. The level of public good in each region is decided by majority voting of its residents. If there are two residents, assume that the supply is the average of the preferred quantities of the residents.

a. Show that the preferred quantity of public good for consumer h if they locate in jurisdiction i is given by G^h = nⁱa^h; where nⁱ is the jurisdiction population.

b. Assuming consumers correctly predict the consequences of location choice, show that there is no equilibrium if

c. Show that there is an equilibrium if consumers take provision levels as given.

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