Suppose there are two identical cities, city A and city B. They have the following utility curve: x + 5 if æ < 5, u(x) 20 – 2x if x > 5, where x is the number of workers (in millions), and u(x) is the utility of a single worker. (a) Suppose city A has 3M workers (so x = 3 for this city), and city B has 6M workers. Is this an equilibrium? If so, it is stable? Equilibrium: Yes / No. Stable: Yes / No . Еaplanation. (b) Now suppose that both cities have 12.5M workers. Is this an equilibrium? Is it stable? Equilibrium: Yes / No. Stable: Yes / No . Еaplanation. (c) There is an improvement in city B. Its new utility curve is: 2x + 6 if x < 6, 30 – 2x if x > 6. What is the new equilibrium? Who gained from this improvement? In equilibrium, population of A is and population of B is
Suppose there are two identical cities, city A and city B. They have the following utility curve: x + 5 if æ < 5, u(x) 20 – 2x if x > 5, where x is the number of workers (in millions), and u(x) is the utility of a single worker. (a) Suppose city A has 3M workers (so x = 3 for this city), and city B has 6M workers. Is this an equilibrium? If so, it is stable? Equilibrium: Yes / No. Stable: Yes / No . Еaplanation. (b) Now suppose that both cities have 12.5M workers. Is this an equilibrium? Is it stable? Equilibrium: Yes / No. Stable: Yes / No . Еaplanation. (c) There is an improvement in city B. Its new utility curve is: 2x + 6 if x < 6, 30 – 2x if x > 6. What is the new equilibrium? Who gained from this improvement? In equilibrium, population of A is and population of B is
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
3.
Transcribed Image Text:Suppose there are two identical cities, city A and city B. They have the following utility curve:
x + 5
if x < 5,
u(x) =
20 – 2x if x > 5,
where x is the number of workers (in millions), and u(x) is the utility of a single worker.
(a) Suppose city A has 3M workers (so x = 3 for this city), and city B has 6M workers. Is
this an equilibrium? If so, it is stable?
Equilibrium: Yes / No. Stable: Yes / No .
Explanation.
(b) Now suppose that both cities have 12.5M workers. Is this an equilibrium? Is it stable?
Equilibrium: Yes / No. Stable: Yes / No .
Еaplanation.
(c) There is an improvement in city B. Its new utility curve is:
2x + 6
if x < 6,
30 – 2x if x > 6.
What is the new equilibrium? Who gained from this improvement?
In equilibrium, population of A is
and population of B is
Еаplanation.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 1 images
Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education