Residents of two districts, Oz and Wonderland, initially fall into two types: blue (B) and red (R). In Oz, there are 500 blue residents and 1000 red residents, while in Wonderland there are 1000 blue residents and 500 red residents. Blue residents earn a regular passive income of YB = 12,000, while red residents' passive income is Y₁ = 2,000 due to their lower initial endowments. Both districts provide a local public good for their residents, G. Utility is given by V₁ = 4Y (G+)-G² for i= B, R. The cost of the local public good per resident is C = 23G-8, everywhere. Provision of this good takes place at the local government level, with the amount of provision chosen by majority vote within each district. (b) In this post-migration equilibrium, what amounts of local public good would be provided in each location? Show all workings. (c) Show that the decentralisation theorem holds, contrasting the uniform provision level that would be chosen by a central planner with the locally determined provision levels found in part (b)

b) Consider agent A with (inverse) demand curve for the public good and agent B with inverse demand , where prices are measured in £ per unit. The marginal cost of producing the public good is £10 per unit. What is the Pareto efficient level of the public good? Explain.  Illustrate in a graph. [Hint: Compute the marginal social benefit of the public good by adding up the demand curves vertically, over the p’s]

PLEASE ANSWER PART b) and c) only

Suppose the government is trying to determine how to deal with pesticide contamination of its water supply. It wants to undertake a benefit-cost analysis of two alternative policy options for controlling pesticides: Upgrade its municipal water treatment plant to remove the pesticides, or Banning the use of the offending pesticides in the metropolitan area. Assume that either techniques reduces pesticides to a level which does not adversely affect human health. The cost of these control options are as follows: Municipal treatment upgrades: Capital Costs = $9 million. The new plant is constructed over one year. It starts operating at the beginning of year two. Once the plant begins operation, it has operating costs of $1 million per year. Once constructed, the plant lasts for 5 years, then it must be replaced with a new plant. Pesticide Ban: Annual operating costs due to substitution of non-toxic methods of controlling “pests” = $4 million per year. These costs would last forever. The…