spud, utility of each person increases by 4, or if one Brob throws away a spud, then utility increases by 1/N, although is so large, this is practically imperceptible). What is the socially optimal number of spuds consumed S..? Alfred Pigou arrives to Brobdingnag and proposes a tax on the consumption of spuds to encourage flowers. What is that tax [? What should the government do with the mangos it collects from the tax? (f) Ronald Coase arrives at Brobdingnag and argues that no tax is necessary to get Brobs to throw away a socially optimal number of spuds. What is the essence of Coase's argument? Do you agree with him in this instance? (g) The government decides to collect a small number of spuds So from each Brob to build a small "Spud Gallery" celebrating their heritage of spuds. What is the opportunity costffshadow-price of spuds Po S collected by the government, as a function of ? Be sure to take into account the externality mentioned in (e) of throwing spuds away. (HINT: whether or not the Pigouvian tax is in place is irrelevant) 2. Economio Police Department The small town of Economio has been hit by a crime wave, which is spurring changes in the police department. Economio has two households, the Friedmans and the Samuel- sons, each of which maximizes a Cobb-Douglas utility U, (G, r, ) = logG + 2 log ,, i = F, S where z, is consumption of household i and G = 4p + 9g is the total amount of police-days hired by both households. and 9, is how many police-days a particular household hires. Each household faces a budget constraint I, + 9, = 1, where of course 0