Question 1

Two families (A and B) live on a street without garbage collection. The local council will provide garbage collection services if the families are willing to pay for the running costs, which are $35 per month per collection. The demand for the two families for garbage collection is estimated to be = 20 0.5 and = 15 0.5, where P is the price the family is willing to pay for garbage collection per month.

Determine the

a. socially efficient level of garbage collection

b. share of tax burden for both families under Lindahl pricing.

2.A society (made up of only two individuals (x1 and x2) faces the social welfare function, = 61 + 312 and constraint of, 10 = 1 + 2.

a. Determine the allocation between 1 and 2 to maximize social welfare using both Lagrangian and Substitution method.

3.Using relevant diagram, show and discuss that competitive equilibrium maximises societal welfare. Using the same diagram, show and discuss the impact of non-competitive outcome on societal welfare.

4.State the axioms of the Arrows Impossibility Theorem and discuss how majority voting will conflict with any of the Arrow's axioms for collective choice