Question
1. Find the optimal activity of person i as a function of a where f (ai) = ai if the society is so large that
1. Find the optimal activity of person i as a function of a where f (ai) = ai if the society is so large that i's impact on the average activity is negligible and provide an intuition for the impact of a on the optimal social activity of i. Now assume that the population consists of two groups of equal size, the vulnerable and the non-vulnerable with v and n, respectively.2. Calculate the equilibrium activity av, an and indirect utility for members of both groups. (Note that a = (av + an)/2)3. Suppose a utilitarian social planner who observes each person's resilience can dictate social activity levels. Determine the socially optimal levels asv and asn she would choose.4. Calculate the resulting utilities for the socially optimal choices and compare them to the indirect utilities without intervention. Discuss.
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