Jack and Jill are the only two residents in a neighborhood, and they would like to hire a security guard. The value of a security guard is $200 per month to Jack and $150 per month to Jill. Irrespective of who pays the guard, the guard will protect the entire neighborhood and charge $120 per month for the service.Suppose Jack earns $8,500 per month and Jill earns $3,500 per month.
a. With a proportional tax of 1 percent on income, how much would Jack and Jill pay, and would it be enough to pay for the security guard?
Jack would pay $ .
Jill would pay $ .
This tax be enough to pay for the security guard.
b. Suppose instead that Jack proposes a payment scheme under which Jack and Jill would each receive the same net benefit from hiring the guard. How much would Jack and Jill pay now?
Jack would pay $ .
Jill would pay $ .
