Reference no: EM133066202
Consider professors and students living in the boroughs of Mississauga and the Kensington. Professors have an income of Y = 200; students have an income of Y = 100 and both boroughs use head taxes to provide road repair services for their citizens.
Assume professors value road repair more than students because they drive more; R units of road repair gives each individual benefits valued TB = 1/10 (Y × R) - 1/2 R2
The per-resident cost of road repair is 5R.
(a) What is road repair's marginal cost?
(b) Derive road repair's marginal benefit schedule for each type of individual.
(c) How much does each type of individual want to spend on road repair?
(d) Assume that there are 100 people in each borough and residents are distributed as shown in this table:
|
|
Mississauga
|
Kensington
|
|
Professors
|
75
|
25
|
|
Student
|
25
|
75
|
If each borough uses majority voting to determine how much road repair to provide, how much will each borough provide? Are any residents unsatisfied with the amount of road repair?
Now assume that professors and students are able to migrate between Mississauga and Kensington in response to the policies chosen by majority voting.
(e) Who will choose to move?
(f) Write out the equilibrium distribution of residents across boroughs in a two- by-two table.
(g) Are any residents unsatisfied with the amount of road repair in the free- migration equilibrium? Is the provision of road repair efficient?