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8. Consider the locational equilibrium model from figure 8-2. Two neighborhoods of 100 households exist and there are 100 households of each type. Instead of income sorting, consider education sorting: the two groups will be households with college degrees and households without. Assume all households are willing to pay a premium to live in high education neighborhoods. Draw 2 cases: one where the outcome will be two segregated neighborhoods, and one where there will be a mixed outcome (not 50/50 in each neighborhood). What is the key characteristics of the premium curve (or WTP curve) which makes these cases occur? FIGURE 8-2 Segregation Equilibrium If high-income households have a secper premium curve, the integrated outcome (point i, with 50 of each type of houschold in A ) is unstable. Segregation (shown by point s) is the equilibrium, with all 100 high-income houscholds in A. The equilibrium rent gap is 530 : Rent is $30 higher in ncighborhood A. 8. Consider the locational equilibrium model from figure 8-2. Two neighborhoods of 100 households exist and there are 100 households of each type. Instead of income sorting, consider education sorting: the two groups will be households with college degrees and households without. Assume all households are willing to pay a premium to live in high education neighborhoods. Draw 2 cases: one where the outcome will be two segregated neighborhoods, and one where there will be a mixed outcome (not 50/50 in each neighborhood). What is the key characteristics of the premium curve (or WTP curve) which makes these cases occur? FIGURE 8-2 Segregation Equilibrium If high-income households have a secper premium curve, the integrated outcome (point i, with 50 of each type of houschold in A ) is unstable. Segregation (shown by point s) is the equilibrium, with all 100 high-income houscholds in A. The equilibrium rent gap is 530 : Rent is $30 higher in ncighborhood A

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