Assume that there exists a small region that is subdivided into three independent local political
jurisdictions.
Building off of HW2, assume that there exists three different types of individuals i = {1, 2, 3} residing
within the region, each with the following demand for park space:
q1 = 100 - 2p
q2 = 110 - 2p
q3 = 126 - 2p
Assume also that the region contains nine individuals distributed evenly across type (i.e., there are three
Type 1 people, three Type 2 people, and three Type 3 people). Individuals must choose from one of
the three jurisdictions when picking a residence and each jurisdiction must house exactly three
individuals in equilibrium (assume, for example, that the housing stock is limited to only three
residences within each jurisdiction).
(a) If each jurisdiction were perfectly heterogeneous (i.e., each community contains one person of each
type), what is the aggregate level of consumer surplus within the region? Assume, like in HW2,
that each unit of park space costs $90 and the per-unit cost is split evenly across a jurisdiction's
residents. Voters decide outcomes by majority rule. Please show your work rationalize your
answer. 5pt
Hint: aggregate regional surplus is calculated by summing across the region's nine residents
(b) Assume that each person sorted into a jurisdiction of like-minded individuals (i.e., each jurisdiction
in now homogenous). What would the region's aggregate the level of consumer surplus be under
this scenario? Does aggregate regional welfare improve, decline, remain unchanged? Again,
outcomes are determined by majority rule. Please show your work rationalize your answer. 5pt
Jurisdiction 1
Jurisdiction 2
Jurisdiction 3