Question: Exercise 2 Consider a competitive economy with two type; of consumers and a representative, firm. Consumer i e {I, 2} has preferences over leisure

Exercise 2 Consider a competitive economy with two type; of consumers and

Exercise 2 Consider a competitive economy with two type; of consumers and a representative, firm. Consumer i e {I, 2} has preferences over leisure and consumption of a public. good repre sented by the, utility function Oiln(T + (I Oi)lny, where ni (O, I) and < Here, xi repre;ents labor supply from consumer i and y indexes consumption of the public, good. The public good is produced with technology y (mi + x2)l/2 I. Find the (utilitarian) social planner's solution. Is anyone contributing more in funding the production of the public good? 2. Find the competitive solution. Is anyone contributing more in funding the production of the public good? 3. Do answers to (I) and (2) differ? What does this mean in terms of efficiency of competitive &luilibria? 4. your previous answer sugge;t anything regarding efforts acrcxss heterogeneous consumers to help curb air pollution? Why would preferences differ across individuals in the first place?

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