What is the socially optimal taxtOPTthat maximises the average utilityuAV G?Solution:The average utility can be written asuAV
ECO3055 Political EconomyFormative Assessment1. Consider a country withn≥3 citizens, wherenis odd. Suppose that thepreferences of citizeniover a public goodg∈[0,1] and a private goodci∈[0,1]are characterized by the utility functionui=ci+αi√g,whereαi∈[0,1/n] denotes how much citizenivalues the public good. LetαAV Gbe the average andαMEDbe the median of the distribution of valuations.Assume, in addition, that each citizenihas initial resources in […]