Question
Imagine a world of two goods: the good x and a cash m. In this world, the consumption of xi units of the good x
Imagine a world of two goods: the good x and a cash m. In this world, the consumption of xi units of the good x leads to an emission of pollutant in quantities s*xiThe consumption of cash does not lead to pollution. There are n identical consumers in this economy, each with an income of y and all the following preferences:Ui(xi;m;) = ? lnxi + mi + ?E,Or E = Ebar - ?i=1 to n (s*xi) (si picture below)is the quality of the air that the consumer breathes. Suppose that the Price of the property x is p and that the price of cash m is 1.A) What is the amount of the good "consumed by each individual at the Nash equilibrium of this game? (4 points)B) If individuals could coordinate their decision to consume the good x, what amount of good x would they understand each other to consume each? (4 points)C) Suppose a government that seeks to encourage people to choose individually the amount of x that would be obtained by cooperation in (b). What amount of tax on the property x should he impose? (4 points)
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