Suppose there are two identical cities, city A and city B. They have the following utility curve: x + 5 if æ < 5, u(x) 20 – 2x if x > 5, where x is the number of workers (in millions), and u(x) is the utility of a single worker. (a) Suppose city A has 3M workers (so x = 3 for this city), and city B has 6M workers. Is this an equilibrium? If so, it is stable? Equilibrium: Yes / No. Stable: Yes / No . Еaplanation. (b) Now suppose that both cities have 12.5M workers. Is this an equilibrium? Is it stable? Equilibrium: Yes / No. Stable: Yes / No . Еaplanation. (c) There is an improvement in city B. Its new utility curve is: 2x + 6 if x < 6, 30 – 2x if x > 6. What is the new equilibrium? Who gained from this improvement? In equilibrium, population of A is and population of B is
Suppose there are two identical cities, city A and city B. They have the following utility curve: x + 5 if æ < 5, u(x) 20 – 2x if x > 5, where x is the number of workers (in millions), and u(x) is the utility of a single worker. (a) Suppose city A has 3M workers (so x = 3 for this city), and city B has 6M workers. Is this an equilibrium? If so, it is stable? Equilibrium: Yes / No. Stable: Yes / No . Еaplanation. (b) Now suppose that both cities have 12.5M workers. Is this an equilibrium? Is it stable? Equilibrium: Yes / No. Stable: Yes / No . Еaplanation. (c) There is an improvement in city B. Its new utility curve is: 2x + 6 if x < 6, 30 – 2x if x > 6. What is the new equilibrium? Who gained from this improvement? In equilibrium, population of A is and population of B is
Chapter1: Making Economics Decisions
Section: Chapter Questions
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