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Investment in Amenities and Impact Considers two cities (A, B) which start with the same indifference and iso-profit curves and are in equilibrium. City A decides to invest heavily in cultural facilities which consumers value highly. What is likely to be the expected impact on relative rents and wages between the two cities in each of following circumstances? a) These cultural facilities are funded from an increase in taxes on businesses which receive no benefit. b) These cultural facilities are funded from an increase in taxes on households. Households are still better off. Businesses are unaffected. c) These cultural facilities are funded from an increase in taxes on households. Households are still better off. However, businesses also receive a benefit.
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