ufp_ps2_12_sol

# The more individuals are reached or participate in

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to promote socially desirable behavior, such as not using a cell phone while driving. The more individuals are reached or participate in the campaign, the safer are the streets. d) If the mobility costs are larger than the differences in utility that the household obtains from moving, then it is rational not to move. Low income households are typically renters and do not face transaction costs associated with buying and selling a house which can easily account for 10 percent of the housing value. This suggest that they have lower mobility costs.

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Problem 2: Public Goods (40 percent) a) The preferred level of public good provision for a voter with income level Y i can be calculated by solving the following individual optimization problem: max G U i = Y i - G N 1 - α G α The first order condition of this problem is: ∂U i ∂G = Y i - G N 1 - α G α ( (1 - α ) Y i - G N - 1 - 1 N + αG - 1 ) = Y i - G N 1 - α G α (1 - α ) - 1 Y i N - G + α 1 G = 0 You can find the solution by making the terms inside the bracket to be zero: (1 - α ) 1 Y i N - G = α 1 G Specifically, individual cost and benefit of consuming one more unit of G should be equal. The individual preferred level is given by: G = αY i N b) The second derivative is given by: 2 U i 2 G = Y i - G N 1 - α G α (1 - α ) - 1 Y i N - G + α 1 G 2 + Y i - G N 1 - α G α (1 - α ) - 1 ( Y i N - G ) 2 - α 1 G 2 = - Y i - G N 1 - α G α 1 Y i N - G + 1 G 2 α (1 - α ) < 0 c) You can easily see that the concavity implies single peakedness. Suppose a concave utility
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