Utility-maximization

3 Externality There are toy people, Alice and Bob Alice consumes quantity ra of good s, with utility function InZA - CA (with va to be explained, notice that the in applies only to ra) Bob consumes quantity ep of good a, with utility function 20-01 (with ca to be explained, and with the in applying only to za). Each has income / and the price of z is 1. If Alice consumers quantity z, of good s, the generates an equal quantity of noxious fumes, which we denote ep (and hence so - 24). Alice does not care about the fumes, but they impose dinutility on Bob, However, at cout p per unit, Alice can reduce the amount of fumes she produces. Hence, we can think of Alice's budget constraint as Alice can spend all of h otherwise has her effecti reduces her fumes. (We generate negative amounts quantity ex - zo of infernal rac adversely affects Alice, 1 1 Fin