Reference : Rosen, Harvey S. Public Finance, 10th Edition. McGraw-Hill Higher Education. Question 4. Many controversial issues in public finance concern when a central authority should allow markets to work and when it should intervene. Generally we think of the government as the central authority, but it could be a university as well. For example, according to Princeton University's student newspaper, the Daily Princetonian (April 16, 2007), there was "a flourishing market of graduation ticket buyers and sellers on [the Internet]." However, the dean of students shut down the market, arguing that "[s]elling tickets undermines that spirit of com- munity, and undermines the sense of class unity that seniors have worked hard to create." To analyze this policy, assume that a typical senior's utility depends only on two commodi- ties, graduation tickets and a composite of all other goods. Assume there are two students, Angelo and Bahn, each of whom starts out with three tickets. However, Angelo is "rich" and has twice the amount of all other goods as Bahn. For simplicity, you may assume that graduation tickets are infinitely divisible. a. Draw an Edgeworth Box showing the initial allocation, assuming conventionally shaped indifference curves for both students. b. Using the Edgeworth Box, explain how the ban on selling tickets can lead to an inef- ficient outcome. c. Using the Edgeworth Box, represent a situ- ation in which the ban on selling tickets. does not reduce efficiency for these these two students. 6. Imagine a simple economy with only two peo- ple, Augustus and Livia. a. Let the social welfare function be W= UL+ 2UA where U L and U A are the utilities of Livia and Augustus, respectively. Graph the social indifference curves. How would you describe the relative importance assigned to their respective well-being? b. Repeat part a when W=UL = +L AAssume that the utility possibilities curve is as follows: Graphically show how the optimal solution differs between the welfare functions given in parts a and b. c. Assume that the utility possibilities curve is as follows: Graphically show how the optimal solution differs between the welfare functions given in parts a and b . as follows: students