Can someone help me this one ? Multiple Equilibria with Race Using Figure 8-5 as

Question

Can someone help me this one ?

Multiple Equilibria with Race Using Figure 8-5 as a starting point, suppose the premium curve for black households is an inverted U and lies above the white curve for a white population in the range 50-60 whites, but below the white curve for a larger white p intersect at 60 white households a. Draw the premium curves b. Integration (50 white, 50 black) [is, isn't] a stable equilibrium because c. A mixed neighborhood (60 white, 40 black [is, isn't a stable equilibrium because d. Segregation (100 white, 0 black) [is, isn't] a stable equilibrium because FIGURE 8-5 Racial Segregation ulation. In other words, the two premium c urves AB Premium (white) Premium (black) 50 67 87 100 Whites in A The premium curves reflect racial preferences: For white households, the ideal mix is 87 percent white. For black households, the ideal mix is 67 percent white. Because the white curve lies everywhere above the black curve, the equilibrium in this case is segregation (point s).

Explanation / Answer

Since the premium curve is already drawn. I will take it as given. Hence, would base my analysis based on that only.

1. An integration of 50, 50 is not a stable eqm because beause blacks are better with an ideal mic of 67% whites.So, they will prefer to move in the locatlity wtih more whites. hence not stable.

2. 60, 40 will not be an eqm because whites are better off when there are 87% whites. Hence, they will try to keep the segregration to that level. Hence, not stable.

3. This will be a stable eqm because for white people the premium curve is always above the black's premium curve. And, at S, the rent gap is low as well.

Hope this help.

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