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Question 2. There are two people in a community: Andy, who is healthy, and Bill, who is sick. Unfortunately, the government cannot identify Andy or
Question 2. There are two people in a community: Andy, who is healthy, and Bill, who is sick. Unfortunately, the government cannot identify Andy or Bill by name, so they do not know who is sick and who isn't. All the government knows is that one person is sick and one is not, and that a healthy person can pretend they are sick if it in their interest to do so. A sick person has the utility function U = C + 0.6T . A healthy person has the utility U = C + 20. C is consumption of cookies and T is units of therapy. The government has $100 in resources, and the prices of C and T are each $1. a. [12 marks] Draw the UPF in this situation. What allocation(s) of resources would maximize the social objective of a Utilitarian government? What allocation would maximize the social objective of a Rawlsian government? (Be careful; you need to find the amount of cash and therapy each person would consume). b. [4 marks] Draw the UPF in the case where the government can observe which person is Andy and which is Bill. How would your answers in part (c) change now?
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