BSNS113 Tutorial 7 S1 2021.pdf - BSNS113 Tutorial 7 Week...

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1 BSNS113, Tutorial 7 Week beginning 26 April Public goods and economic inequality 1. Suppose that you and a friend decide to flat together next year. You find a typical old house to rent with two bedrooms, a lounge, a kitchen/diner and a bathroom. You move your stuff in and things go well. As the weather gets colder you heat the lounge/kitchen/diner with the heatpump in the lounge, and your bedrooms with portable column heaters. a. Suppose both of you like to hang out in the lounge. You have relatively high demand for heat; you like being warm and are willing and able to pay for it. Your marginal value for warmth is labelled D high in the graph below. Your friend is more hardy to cold and has less budget. Add a second MV curve to the graph consistent wi th your friend’s lower willingness to pay for heat, and label it MV low . $ P D high = MV high temp b. A warm lounge is essentially a public good to householders (or a club good more generally). Add a curve that shows collective MV for heat (you both get value from each additional degree of temperature).

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