Consider a city of 200 people (100 tall and 100 short) and two neighbourhoods (100 people each). People generally prefer to live close to short…

Consider a city of 200 people (100 tall and 100 short) and two neighbourhoods (100 people each). People generally prefer to live close to short…

Consider a city of 200 people (100 tall and 100 short) and two neighbourhoods (100 people each). People generally prefer to live close to short people. To draw the rent- premium curves, put the number of short people in neighbourhood A (from 50 to 100) on the horizontal axis. The premium curve of tall people is concave from below, and in the neighbourhood of 100 short people, the premium is $50. The two premium curves intersect at S=70 and premium = $20.

a) Draw the two premium curves

b) Is integration (50 short, 50 tall) a stable equilibrium? Why or why not?

c) Is a mixed neighbourhood (70 short, 30 tall) a stable equilibrium? Why or why not?

d) Is segregation (100 short, 0 tall) a stable equilibrium? Why or why not?

 
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