In a country there are 4 types of individuals The utility function of the ith type is given by: U¡ (x₁, G) = x₁ + i * ln G; i = 1, 2, 3, 4 where, x; denotes the private good consumed by each citizen and G denotes the public good. The first type has 2 individuals, the second type has 3 individuals, the third and the fourth type have 2 individuals each. The marginal cost of providing the public good is 9/-. a. Compute the efficient level of provision of the public good. b. Assume that the local government asks the voters to directly decide about level of G informing them that for each unit of the public good, each of them will be asked to pay a contribution equal to 1. What would be the preferred level of G by each of the four subgroups be? Which G would come out of the voting process?
In a country there are 4 types of individuals The utility function of the ith type is given by: U¡ (x₁, G) = x₁ + i * ln G; i = 1, 2, 3, 4 where, x; denotes the private good consumed by each citizen and G denotes the public good. The first type has 2 individuals, the second type has 3 individuals, the third and the fourth type have 2 individuals each. The marginal cost of providing the public good is 9/-. a. Compute the efficient level of provision of the public good. b. Assume that the local government asks the voters to directly decide about level of G informing them that for each unit of the public good, each of them will be asked to pay a contribution equal to 1. What would be the preferred level of G by each of the four subgroups be? Which G would come out of the voting process?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:In a country there are 4 types of individuals The
utility function of the ith type is given by:
Ui (Xi, G) = x₁ + i * In G; i = 1, 2, 3, 4
where, x₁ denotes the private good consumed by
each citizen and G denotes the public good.
The first type has 2 individuals, the second type
has 3 individuals, the third and the fourth type
have 2 individuals each. The marginal cost of
providing the public good is 9/-.
a. Compute the efficient level of provision of
the public good.
b. Assume that the local government asks the
voters to directly decide about level of
G informing them that for each unit of the
public good, each of them will be asked to
pay a contribution equal to 1. What would
be the preferred level of G by each of the
four subgroups be? Which G would come
out of the voting process?
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