Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The question is as follows Consider a twoperson household. These two people have very similar preferences (that's why they enjoy living together), which are described

The question is as follows

image text in transcribedimage text in transcribedimage text in transcribed
Consider a twoperson household. These two people have very similar preferences (that's why they enjoy living together), which are described by the following utility function: 1.5,:(117, y) = :17 + day, where i is the index of a person and a parameter a, is a positive real number (which may or may not be the same for different people). For example, if :11 = 5, then person 1 prefers (1,1) to (5,0) and prefers (0,2) to (1,1) (mm, 2) = 10 > u1(1, 1) = 6 > u1(5,0) = 5). Sometimes they need to make joint decisions. They decide very simply: for any two alternatives, (m',g/) and {:v\the household prefers (1", 3;"). If they pick di'erent alternatisz (say person 1 picks (r' , y') and person 2 picks (3\We switch now to a three- person household (with preferences 1($,'y} = $+c1y, 11.2 (3:? y] = x | (1211;, v.3 (my) 2 x | (1311;). They also decide by voting: if bundle (1",y') collects more votes than the bundle (3",y"), then (1",y'} is selected. A person who is indi'erent does not cast a vote. That is, if 1 and 2 prefer my}, it will be selected regardless of what 3 prefers. If 1 prefers (3," ,y'}, 2 is indierent, and 3 prefers (3\

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Entrepreneurship

Authors: Andrew Zacharakis, William D Bygrave

5th Edition

1119563097, 9781119563099

Students also viewed these Economics questions