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  3. 2 consider two citizens bill and ted who live in...

Question: 2 consider two citizens bill and ted who live in...

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2. Consider two citizens, Bill and Ted, who live in the fictional country of Econoland. Bill works as a lawyer and eams $50 per hour. Ted works at Meijer and earns $6 per hour. Both Bill and Ted have identical utility functions equal tou=y(which is the same as U=JT)where yìs take-home pay (which also equals consumption, if neither Bill nor Ted save). The govemment of Econoland is concemed about i President of Econoland wants you to evaluate three policy options that tax Bill and redistribute the proceeds to Ted. Ifthe current policy of taxing Bill at 0% and redistributing nothing to Ted is left in place, Bill will choose to work 20 hours. If the government taxes Bill at a rate of 25%, Bill will chose to work 16 hours. If the government taxes Bill at a rate of 40%, Bill will choose to work 12 hours. Ted will choose to work 20 hours a week no matter what the tax rate is. As a result, the What is Bills take-home pay and utility at each possible tax rate? What is Teds? a. b. Rank the three policy proposals using a Utilitarian social welfare function. Rank them using a Rawlsian social welfare function. c. How would your answer to part b. change if the utility fumction was d. Suppose a more realistic representation of the problem is to assume a utility function of 7 3 for Bill and -Y12 for Ted. This is because Bill has to support a family with his income, and thus needs a higher level of income to get on the same level of utility. However, Ted is just a high school student living at home and working at Meijer as a summer job for ome extra on the same level of utility. How does the Rawlsian social welfare function rank the three policy proposals now? money. Thus, he needs less income than Bili to get

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