Let: U1 = x1 + z^.5, Y1 = x1 + pz1 U2 = x2 - .5z^.5, Y2 = x2 + pz2 z = z1 + z2, Y is the income of the agent, and p is the price of z1 and z2. What is the social-optimal amount of z1 and z2? What is the optimal amount of z1 agent 1 would choose given z2, and vice versa? What can the social planner do so that the agents choose the socially optimal level of z1 and z2? How much is needed to achieve the social-optimal amount?
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- Person 1 and person 2 are the only two residents of an economy. Person i (where i is either 1 or 2) has the utility function Here, Yi is person i’s income and β is parameter between 0 and 1. Assume that the social welfare function is where α is a parameter between 0 and 1. Initially, person 1’s income is 1 and person 2’s income is 2. a) Express W in terms of Y1 and Y2. If a social indifference curve shows all the pairs (Y1, Y2) that yield the same value of W, what would a social indifference curve look like if it were drawn in the (Y1, Y2) quadrant? Find an algebraic expression for the slope of a social indifference curve. b) Imagine that income redistribution is costless, in the sense that the economy can reach any pair (Y1, Y2) that satisfies the condition Draw a graph of the attainable pairs in the (Y1, Y2) quadrant. This set is called the “utility possibility frontier.” Using this frontier and the social indifference curves,…Assume that the daily demand for packs of cigarettes in the tobacco-addicted nation of Pcoria is Q=100−PFurther assume that the marginal cost of producing a pack of cigarettes is §6, and that the market for cigarettes is perfectly competitive. Assume that each pack of cigarettes smoked does §6 worth of health damage to the smoker in the form of increased cancer risk and a total of §5 worth of health damage to the smoker’s neighbors via secondhand smoke. Finally, assume that all Pcorian cigarette consumers are aware of these costs. a. Assume that a Pcorian smoker named Jay states that he is willing to buy a pack of cigarettes for §8, but not a penny more. In this market, where the price is §6 per pack, what are the private benefits and private costs incurred whenever he buys a pack of cigarettes? Is it privately efficient for him to buy a pack of cigarettes at this price? b. What about the public benefits and public costs? Is it socially efficient for him to buy a pack of cigarettes at…Which of the following statements is correct? a.) Economic analyses can often do a reasonable job of evaluating the net benefits from some re-allocation of environmental resources. Policymakers should thus feel comfortable in choosing among alternative policies according to whichever one yields the highest net benefits. b.)Basic benefit-cost analysis, as typically practiced in the U.S., assumes that the marginal value of an extra dollar of net benefits is the same for everyone. c.)All socially optimal allocations are efficient, but the reverse is not true. d.)There is always a tradeoff between efficiency and equity. A reallocation of environmental resources that improves efficiency cannot also improve equity, and vice versa.
- Modified True or False: State whether each statement is true or false. If the statement is false, briefly explain why it is so, and then restate it to make it true. k. Pareto efficiency or Pareto optimality is a condition where no change is possible that will make some members of society better off without making some other members of society worse off.During a nationwide program to immunize the population against a new strain of the flu, public health officials determined that the cost of inoculating x% of the susceptible populationwould be approximately C(x) = 1.85x/100-x million dollars. (iii) Suppose 17 million dollars are available for providing immunization. What percentage of the susceptible population will not receive immunization?(iv) If money was not a problem will they be able to providing immunization to the entire susceptible population?A small community has 20 people, each of whom has a wealth of $12,000. Each individual must choose whether to contribute $300 or $0 to the support of public entertainment for their community. The money value of the benefit that a person gets from this public entertainment is b times the total amount of money contributed by individuals in the community. Question 3 options: If 20b > 1, everybody is better off if all contribute to the public entertainment fund than if nobody contributes, but if 20b < 1, everybody is better off if nobody contributes than if all contribute Everybody is worse off if all contribute than if nobody contributes if b > 1, but if b < 1, everybody is better off if nobody contributes. This game has a dominant strategy equilibrium in which nobody contributes anything for public entertainment. If 20b > 1, there is a dominant strategy equilibrium in which everybody contributes. In order for there to be a dominant strategy equilibrium in which all…
- Public Good Contribution: Three players live in a town, and each can choose to contribute to fund a streetlamp. The value of having the streetlamp is 3 for each player, and the value of not having it is 0. The mayor asks each player to contribute either 1 or nothing. Each player makes a decision without knowing others’ contributions. If at least two players contribute then the lamp will be erected. If one player or no players contribute then the lamp will not be erected, in which case any person who contributed will not get his money back. Write down the strategy sets of each player, their payoffs, and find all pure-strategy Nash equilibria.Concerned about the welfare of people, the Government restricts consumption of good 2 to a maximum of 20 units. If a consumer has an income of $50 and faces price p1 = 1 and p2 = 2, what is the budget constraint for the consumer given the rule from Government? Group of answer choices x2 = 20 if x1 ≤ 10, x1 + 2x2 = 50 if 10 ≤ x1≤ 50 x1 + 2x2 = 50 if 0 ≤ x1≤ 50 none of the above x2 = 20 if x1 ≤ 20, x1 + 2x2 = 50 if 20 ≤ x1≤ 50 x2 = 20A decrease in the supply of in building materials (shortage) means that construction companies cannot get enough materials to complete all their projects. The owners of construction companies in Fiction Town have a choice between these two options: To lay off (temporarily fire) 10% of their least experienced workers. To reduce the hours of all employees by 5 hours a week, meaning they will be paid for 5 fewer hours of work. What happens to the average income of people who are employed as construction workers? The owners of the companies make profit from the payments made on their construction projects. What happens to the income of the owners? Assume that construction workers are counted as part of the average income in all of Fiction Town. What happens to the average income of people there? Why?
- A consumer’s demand for a medical service is as follows: Q = 100 - PP where PP is the out-of-pocket price she actually faces. She is considering four different insurance options: uninsurance, full insurance, a 50% coinsurance plan, and a copayment plan with a $25 copay. Assume this service has a list price of PL = $70. Calculate Q under each insurance plan. Calculate the amount of social loss under each insurance plan. Derive a general expression for social loss as a function of x and PL, where x is the copay amount under a copayment plan. For simplicity’s sake, assume x < PL. Derive a general expression for social loss as a function of y and PL, where y is the coinsurance rate.Select one or more: a. A Pareto efficient outcome is where you cannot make anyone better off without someone else ending up worse off. b. All are happy with their share of income in a Pareto efficient outcome. c. There is only ever one Pareto efficient outcome. d. If two people have £100 to split, any split in which all the money is used up is Pareto-Efficient, even if one person gets none.Indicate whether the statement is true or false, and justify your answer.A Coasian approach may not succeed in achieving a socially optimal level of organ transactions.