Residents of two districts, Oz and Wonderland, initially fall into two types: blue (B) and red (R). In Oz, there are 500 blue residents and 1000 red residents, while in Wonderland there are 1000 blue residents and 500 red residents. Blue residents earn a regular passive income of Yg= 12,000, while red residents' passive income is Y₁ = 2,000 due to their lower initial endowments. Both districts provide a local public good for their residents, G. Utility is given by V₁ = 4Y (G+¹)-G² for i= B, R. The cost of the local public good per resident is C = 23G-8, everywhere. Provision of this good takes place at the local government level, with the amount of provision chosen by majority vote within each district. (a) If migration is costless, describe and explain the equilibrium distribution of residents across the two communities, relating it to the Tiebout hypothesis.
Residents of two districts, Oz and Wonderland, initially fall into two types: blue (B) and red (R). In Oz, there are 500 blue residents and 1000 red residents, while in Wonderland there are 1000 blue residents and 500 red residents. Blue residents earn a regular passive income of Yg= 12,000, while red residents' passive income is Y₁ = 2,000 due to their lower initial endowments. Both districts provide a local public good for their residents, G. Utility is given by V₁ = 4Y (G+¹)-G² for i= B, R. The cost of the local public good per resident is C = 23G-8, everywhere. Provision of this good takes place at the local government level, with the amount of provision chosen by majority vote within each district. (a) If migration is costless, describe and explain the equilibrium distribution of residents across the two communities, relating it to the Tiebout hypothesis.
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
ChapterA: The Use Of Mathematics In Principles Of Economics
Section: Chapter Questions
Problem 3RQ: Exercise A3 What dome slices of a pie chart represent?
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