uleS13_mt1_v1_soln

# Per worker curves are given for each city

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Unformatted text preview: ility per worker in City B to u”. Note that population doesn’t change instantaneously. Noting the utility difference, people begin to migrate from City A to City B. This causes City B to grow (and utility in City B to fall as City B moves from point i to b’), and it 7 causes City A to shrink (and utility in City A to rise as City A moves from point a to a’). Equilibrium is reached at a utility of u’. Note that the shifts in population should be equal and of opposite sign for each city. B should grow by exactly the same amount as A shrinks, because the population of the region must live in one city or the other. People who drew careless graphs and didn’t show population changes of equal magnitudes lost points. Which city grows and which shrinks? B grows, A shrinks. What happens to utility in city A as a result of the improved policy in City B? Utility in City A rises as a result of the improved policy in City B. This is because people move out of City A, so City A moves up its utility per worker curve from where it originally started. End Section 2. END OF EXAM. This Page Left Intentionally Blank (for scratch work) 8...
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