Exercises Chapter 8 2019.pdf - Chapter 8 Question 1 Suppose there are three types of houses in a city E(expensive M(medium and C(cheap Each household

Exercises Chapter 8 2019.pdf - Chapter 8 Question 1 Suppose...

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Chapter 8 Question 1: Suppose there are three types of houses in a city: E (expensive), M (medium) and C (cheap). Each household prefers the same spending on public education. Schools are initially financed with property tax based on market value, and initially there were three school districts. Suppose the property tax is replaced by a square-foot tax (e.g. 2$ per square foot per year). The equilibrium number of school districts will decrease to one if … because … Question 2: Households in Metro differ in their demand for public schools: half are low demanders (L) and half are high demanders (H). In addition, houses differ in value: half are expensive (E) and half are cheap (C). The location choices of households are based on property taxes and spending on public schools. a. Normally, we would expect ___ school districts as households sort themselves with respect to ___ and ___. b. There will only be two school districts if ___
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Unformatted text preview: Question 3: Consider a city of 200 people (100 aged and 100 young) and two neighborhoods (100 people in each). People generally prefer to live close to aged people. To draw the rent-premium curves, put the number of aged people in neighborhood A (from 50 to 100) on the horizontal axis. The premium curve of aged people is concave from below, and in a neighborhood of 100 aged people, the premium is $30. The premium of young people is linear, and in a neighborhood of 100 aged people, the premium is $50. The two premium curves intersect at Aged=70, with the rent premium=$20. a. Draw the two premium curves b. Integration (50 aged, 50 young) *is isn’t+ a stable equilibrium because… c. A mixed neighborhood (70 aged, 30 young) *is isn’t+ a stable equilibrium because… d. Segregation (100 aged, 0 young) *is isn’t+ a stable equilibrium because…...
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