Question: SECTION 2. Short Answer Questions. 1) (10 points total) Consider the neighbourhood sorting model discussed in class. Suppose that everyone prefers rich neighbours to

SECTION 2. Short Answer Questions. 1) (10 points total) Consider the neighbourhood sorting model discussed in class. Suppose that everyone prefers rich neighbours to poor neighbours. Assume that there are 10,000 residents in a city, 5000 of whom are rich and 5000 of whom are poor. Suppose that there are 2 neighbourhoods with 5000 identical housing units in each neighbourhood. All residents of the city must live in one of the two neighbourhoods. a) 5 points Draw a set of rent premium curves (one for rich people and one for poor people) that leads to complete income integration in equilibrium. Clearly label the axes of your diagram and clearly label each rent premium curve. Vague or messy diagrams may lose points. b) 5 points Draw a set of rent premium curves (one for rich people and one for poor people) that leads to partial income integration in (a stable) equilibrium. Clearly label the axes of your diagram and clearly label each rent premium curve. Vague or messy diagrams may lose points.

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