A city council is considering two alternative projects: a musical festival and legal services. The city's population consists of 20,000 middle-income individuals and 5,000 poor individuals. The musical festival is valued at a total of $200,000 in the year in which it will take place (year 1). In order to finance the planning work for the festival, an immediate tax of $1 will be charged on all middle-income individuals (year 0). In addition, there will be an entry fee of $10 for those attending the festival (year 1). 25% of the middle-income individuals are expected to attend the festival. The poor individuals are not expected to attend (i.e. the poor individuals do not benefit from the musical festival project). The legal services project is valued at a total of $50,000 per year for the two years in which the services will be available (years 1 and 2). In order to finance the legal services an immediate tax of $1 will be charged on all middle-income individuals (year 0). The legal services are provided free of charge and are available only to the poor. (a) Consider the interest rate is 10%. What is the net present value of the musical festival project? What is the net present value of the legal services project? If the city council must choose between two projects, which one should it select? (2 points) (b) What is the "distributional weight" of each dollar received by a poor person that would make the present values of the two projects equal? Interpret your answer. (2 points) (c) What is the "distributional weight" of each dollar received by a poor person that would make the present value of the two projects equal if the legal services are made available to middle-income individuals and you are told that they are used by both poor and middleincome individuals in proportion to their population shares (but still financed exclusively by middle-income individuals)? Explain the difference with respect to the answer provided in part (b). (2 points) (d) Discuss the use of distributional weights in cost-benefit analysis. (2 points) (e) Explain how the discussion on the use of distributional weights can be linked to the discussion on the choice of social discount rate. (2 points)