A demand curve is said to be income elastic if the demand for the commodity increases more than proportionately with income. For instance, with the demand curve G=kY²/p (where G  is the demand for public goods, Y is income, and p is price), the demand for public goods increases with the square of income. Plot the marginal rate of substitution (MRS) as a function of income for a fixed level of expenditure on public goods (e.g., for the case when G=k ). Assume income is symmetrically distributed. 

What is the relationship between the average value of the MRS and the MRS of the median individual? 

What does this imply about the equilibrium supply of public goods under majority voting with uniform taxation?

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To analyze the relationship between the average value of the marginal rate of substitution MRS and the MRS of the median individual we need to understand the concept of MRS and how it relates to incom... View the full answer