The following table identifies the utility received by each of three voters from the construction of three different government sponsored projects. . Decisions on which projects will be built are based on majority rule votes. Use this table to answer the next two questions. PROJECT UTILITY RECEIVED BY Larry Curly Moe Freeway Interchange $400 -$220 -$210 Smoke Detector Installation -$80 $300 -$240 New Fire Station -$540 -$320 $450 1. Which of the projects has a net positive social benefit to the community? The freeway interchange The smoke detector installation The fire station All three have a net positive social benefit None of the three have a net positive social benefit. 2. Which of the following must happen for the Fire Station to be approved? a. A straight logrolling trade between Larry and Moe b. A straight logrolling trade between Curly and Moe c. A straight logrolling trade between Larry and Curly d. A trade between Larry and Moe with a side payment by Moe of at least $140. e. A trade between Larry and Moe with a side payment by Larry of at least $140. 3. Larry, Curly and Moe each like to take fencing lessons. The price of a fencing lesson is $10. Larry values a fencing lesson at $15, Curly at $13, and Moe at $11. Suppose that if the government taxes fencing lessons at 50 cents each, the price rises to $10.50. A consequence of the tax is that consumer surplus shrinks by a. $1:50 and tax revenues increase by $1.50, so there is no deadweight loss. b. $9.00 and tax revenues increase by $1.50, so there is a deadweight loss of $7.50. c. $7.50 and tax revenues increase by $7.50, so there is no deadweight loss. d. $7.50 and tax revenues increase by $1.50, so there is a deadweight loss of $6. e. $1.50 and tax revenues increase by $10.50 so there is no deadweight loss.
The following table identifies the utility received by each of three voters from the construction of three
different government sponsored projects. . Decisions on which projects will be built are based on majority rule votes. Use this table to answer the next two questions.
| PROJECT | UTILITY RECEIVED BY | ||
| Larry | Curly | Moe | |
| Freeway Interchange | $400 | -$220 | -$210 |
| Smoke Detector Installation | -$80 | $300 | -$240 |
| New Fire Station | -$540 | -$320 | $450 |
1. Which of the projects has a net positive social benefit to the community?
- The freeway interchange
- The smoke detector installation
- The fire station
- All three have a net positive social benefit
- None of the three have a net positive social benefit.
2. Which of the following must happen for the Fire Station to be approved?
a. A straight logrolling trade between Larry and Moe
b. A straight logrolling trade between Curly and Moe
c. A straight logrolling trade between Larry and Curly
d. A trade between Larry and Moe with a side payment by Moe of at least $140.
e. A trade between Larry and Moe with a side payment by Larry of at least $140.
3. Larry, Curly and Moe each like to take fencing lessons. The price of a fencing lesson is $10. Larry values a fencing lesson at $15, Curly at $13, and Moe at $11. Suppose that if the government taxes fencing lessons at 50 cents each, the price rises to $10.50. A consequence of the tax is that consumer surplus shrinks by
a. $1:50 and tax revenues increase by $1.50, so there is no deadweight loss.
b. $9.00 and tax revenues increase by $1.50, so there is a deadweight loss of $7.50.
c. $7.50 and tax revenues increase by $7.50, so there is no deadweight loss.
d. $7.50 and tax revenues increase by $1.50, so there is a deadweight loss of $6.
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