Question

In: Economics

Suppose you have two individuals in a town, Ben and Jerry, deciding over their consumption of...

Suppose you have two individuals in a town, Ben and Jerry, deciding over their consumption of ice-cream and fireworks. Further suppose that the price, as well as the additional cost of producing both goods is $1. Assume that Ben and Jerry have the same preferences. If we left it up to Ben and Jerry, would we get the optimal provision of fireworks? Explain and show your answer.

Solutions

Expert Solution

Here we wouldn't get the optimal provision of fireworks because of the fact that the additional cost of producing both of them are equal and they have the same preferences over consumption and in this regard the optimal provision is idhar using full budget for producing fireworks or zero fireworks and it depends on the utility levels and that is the reason why we don't have an optimal provision here provided that there is a constant marginal utility for both the goods

Rahul Sunny answered 2 years ago
Next > < Previous

Related Solutions

The amount of oxygen consumption was measured in seven individuals over two periods of time while...
The amount of oxygen consumption was measured in seven individuals over two periods of time while sitting with their eyes closed. During the first period, they listened to an exciting adventure story; during the second period of time, they heard restful music. The researcher is not sure whether participants will consume more or less oxygen during the story compared with the music. Here are their results: Subject Story Music 1 5.8 5.3 2 8.1 7.2 3 6.4 6.3 4 7.8...
Mosquito control is a pure public good. Suppose there are 2 identical individuals, Alan and Ben...
Mosquito control is a pure public good. Suppose there are 2 identical individuals, Alan and Ben in the economy, and each has the following marginal private benefit from mosquito control: MPBi=50 – Qi. The marginal cost of mosquito control is MSC=MPC=MC=$10 per unit. a. What is the socially optimal level of mosquito control Q? (Hint: You need to vertically sum the individual private benefits: MSB=MPB1+MPB2.) Illustrate your answer on a graph showing MSB and MSC and labelling all the points...
Mosquito control is a pure public good. Suppose there are 2 identical individuals, Alan and Ben...
Mosquito control is a pure public good. Suppose there are 2 identical individuals, Alan and Ben in the economy, and each has the following marginal private benefit from mosquito control: MPBi=50 – Qi. The marginal cost of mosquito control is MSC=MPC=MC=$10 per unit. e. Is there a free-rider problem in the private provision of mosquito control? Explain. Now suppose that Alan and Ben have only two choices, either to provide no mosquito control, QL= 0, or provide QH=20. Each player...
1. Let Ct be consumption and Xt be a predictor of consumption. Suppose you have quarterly...
1. Let Ct be consumption and Xt be a predictor of consumption. Suppose you have quarterly data on C and X. Let D1t , D2t , D3t , and D4t be dummy variables such that D1t takes the value 1 in quarter 1 and 0 otherwise, D2t takes the value 1 in quarter 2 and 0 otherwise, etc. Which of the following, if any, suffer from perfect multicollinearity and why? a) Ct = α + βXt + γ1XtD1t + γ2XtD2t...
Suppose that you have a metal paper clip that you bend over and over in the...
Suppose that you have a metal paper clip that you bend over and over in the same spot. Draw a stress-strain plot for this experiment and label each part of the curve with its rheological phase or property. Describe what happens during the experiment in terms of stress you apply, strain achieved, and what the metal is doing internally to heal itself during the process. Name the term for this process and describe how it is used historically and today...
Suppose you are deciding how to invest $2,000. There are two options: shares in an airline...
Suppose you are deciding how to invest $2,000. There are two options: shares in an airline company and shares in a petroleum company. There is a 0.25 probability that oil prices will go up, a 0.25 probability that prices will go down, and a 0.50 percent probability they will remain the same. The value of each $100 invested after prices adjust is as follows: Event Probability Airline Oil Company prices fall 0.25 $120 $70 prices same 0.50 $105 $110 prices...
: Suppose that the representative consumer’s preferences over current consumption (C) and future consumption (C 0...
: Suppose that the representative consumer’s preferences over current consumption (C) and future consumption (C 0 ) are given by the following utility function U(C, C0 ) = CC0β The market real interest rate is denoted by r and β > 0. 1. Write down the consumers’ budget constraint for the current and future period. 2. Using the equations in part (1), obtain the inter-temporal budget constraint. 3. Set up the consumer’s optimization problem using the Lagrangian approach. Next, derive...
. b) Suppose there is a group of individuals on which you have individual-level data. Suppose,...
. b) Suppose there is a group of individuals on which you have individual-level data. Suppose, for those with wages below some level ˜w, a policy is implemented to have them work more. You have in your data hours worked, several individual characteristics, the wages, and year. The policy is implemented in the year 2000, and you have data for the year 1998 and 2002. What type of estimation strategy would you use to determine the effect of the policy?...
Suppose there are two individuals who share a house and garden. They have decided to hire...
Suppose there are two individuals who share a house and garden. They have decided to hire a gardener to take care of their front and backyard, but they will each individually decide how much to contribute to paying the gardener. The gardener works for $50 an hour. They both have an income of $4,000 and they both value a tidy garden (measured by the hours G that the gardener works) and private good. Person 1's utility function is given by...
Suppose there are two individuals who share a house and garden. They have decided to hire...
Suppose there are two individuals who share a house and garden. They have decided to hire a gardener to take care of their front and backyard, but they will each individually decide how much to contribute to paying the gardener. The gardener works for $50 an hour. They both have an income of $4,000 and they both value a tidy garden (measured by the hours G that the gardener works) and private good. Person 1's utility function is given by...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT