Consider an economy with two consumers A and B, one generic private good, and one public...

 

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Consider an economy with two consumers A and B, one generic private good, and one public good. Each consumer has an income M. Additionally the consumer's utility functions is: U = log(x¹) + log(G) Where is a generic private consumption, while G is the public good which is financed by the contributions of these two individuals. (a) Find the best response functions and depict them in a diagram. (b) Find the unregulated equilibrium. (c) Find the social optimum. [4 marks] [4 marks] [4 marks (d) Which is a possible effect of a lump sum tax on a private contribution? [1 marks] (e) Is the introduction of personalised prices a better policy compared with the lump sum tax? Justify your answer. [4 marks] Consider an economy with two consumers A and B, one generic private good, and one public good. Each consumer has an income M. Additionally the consumer's utility functions is: U = log(x¹) + log(G) Where is a generic private consumption, while G is the public good which is financed by the contributions of these two individuals. (a) Find the best response functions and depict them in a diagram. (b) Find the unregulated equilibrium. (c) Find the social optimum. [4 marks] [4 marks] [4 marks (d) Which is a possible effect of a lump sum tax on a private contribution? [1 marks] (e) Is the introduction of personalised prices a better policy compared with the lump sum tax? Justify your answer. [4 marks]

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