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5. Consider two towns, Easton and Weston, each with 100 residents. The town governments separately provide snow removal services. All residents of both towns have
5. Consider two towns, Easton and Weston, each with 100 residents. The town governments separately provide snow removal services. All residents of both towns have identical preferences: Ui=Ilnz' +1ns, where is private consumption by resident i and s is per capita expenditure on snow removal in resident 4's town. The prices of a unit of private consumption and a unit of snow removal are both 1. (This means it costs $100 to increase per capita snow removal by one unit, because each town has 100 residents.) Of the 200 total residents across the two towns, 100 have high income = 2y and 100 have low income = y. Begin by assuming an initial distribution with 75 low income and 25 high income residents in Easton, and vice versa in Weston, and that residents do not move towns. a) If the cost of snow removal is shared equally by all residents of a town and each town uses majority rule voting to decide spending on snow removal, what is s in each town? b) Now assume that residents can move freely between Easton and Weston, and that the towns are identical except for the difference in taxes and snow removal expenditure you found in a). What will be the equilibrium income distribution of residents across the two towns? Is this outcome efficient
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