Demand curves are said to be income elastic if the demand for the good increases more than
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Demand curves are said to be income elastic if the demand for the good increases more than proportionately with income. For instance, with the demand curve
the demand for public goods increases with the square of income. Draw the marginal rate of substitution as a function of income for a fixed level of expenditure on public goods. Assume income is symmetrically distributed. What is the relationship between the average value of the marginal rate of substitution and the marginal rate of substitution of the median individual? What does this imply about the equilibrium supply of public goods under majority voting with uniform taxation?
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Economics Of The Public Sector
ISBN: 9780393925227
4th Edition
Authors: Joseph E. Stiglitz, Jay K. Rosengard
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