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.
Homework Set #7 – ECN 212 – Fall 2016 – Dr. Roberts
Homework Set #7 must be submitted online no later than Friday, November 18 at 8:59 p.m. (Hard copy for your convenience.)
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,CurlyandMoeeachliketotakefencinglessons.Thepriceofafencinglesson is$10.Larryvaluesafencinglessonat$15,Curlyat$13,andMoeat$11.Supposethat ifthegovernmenttaxesfencinglessonsat50centseach,thepricerisesto$10.50.A consequenceofthetaxisthatconsumersurplusshrinksby
a.$1:50andtaxrevenuesincreaseby$1.50,sothereisnodeadweightloss.
b.$9.00andtaxrevenuesincreaseby$1.50,sothereisadeadweightlossof$7.50.
c.$7.50andtaxrevenuesincreaseby$7.50,sothereisnodeadweightloss.
d.$7.50andtaxrevenuesincreaseby$1.50,sothereisadeadweightlossof$6.
e.$1.50andtaxrevenuesincreaseby$10.50sothere isnodeadweightloss.
4. Refer to the Table below. Assumethatthepriceofaweekendskipassis$45andthatthepricereflectstheactualunitcostofprovidingaweekendofskiing.What is the value of the consumer surplus that accrues to all four skiers from their weekend trip?
| WeekendSkiTrip | |
| ValuetoAnna | $150 |
| ValuetoBrian | $90 |
| ValuetoClem | $75 |
| ValuetoDave | $50 |
- $75
- $105
- $185
- $215
- $365
- Refer to the Table below. Assumethatthepriceofaweekendskipassis$45andthatthepricereflectstheactualunitcostofprovidingaweekendofskiing.Supposethegovernmentimposesataxof$12onskiing,whichraisesthepriceofaweekendskipassto$57.Thedeadweightlossassociatedwiththetaxis
| WeekendSkiTrip | |
| ValuetoAnna | $150 |
| ValuetoBrian | $90 |
| ValuetoClem | $75 |
| ValuetoDave | $50 |
- $5.
- $12.
- $36.
- $41.
- $57
- Thefollowingtablepresentsthetotaltaxliabilityfora taxpayerunderfourdifferenttaxschedulesfortheincomelevelsshown. Whichtaxschedules in the Table below areprogressive?
| Amount of Tax Due | ||||
| Income | Tax Schedule A | Tax Schedule B | Tax Schedule C | Tax Schedule D |
| $50,000 | $10,000 | $20,000 | $17,500 | $15,000 |
| $100,000 | $30,000 | $30,000 | $25,000 | $30,000 |
| $200,000 | $80,000 | $40,000 | $30,000 | $60,000 |
- TaxScheduleAonly
- TaxScheduleAandTaxScheduleB
- TaxScheduleA,TaxScheduleB,andTaxScheduleC
- Tax Schedule D only
- AllfourTaxSchedulesareprogressive.
- Assume that the five firms in the following table each throw 5 units of pollution into the environment every day. The cost of eliminating these units of pollution is given in the table.
| MARGINALCostofEliminatingPollution | |||||
| TonsofPollution | FirmA | FirmB | FirmC | FirmD | FirmE |
| 1st | 100 | 140 | 150 | 200 | 2000 |
| 2nd | 200 | 580 | 200 | 240 | 3000 |
| 3rd | 900 | 680 | 250 | 440 | 4000 |
| 4th | 1300 | 980 | 300 | 640 | 5000 |
| 5th | 1700 | 1280 | 350 | 840 | 6000 |
Using the table above, suppose the Environmental Protection Agency decides that theoptimalamountofpollutionisonly15tons.Toachievethis,thegovernmentorderseachfirmtoreducetheirpollutiontoonly3tons.Thetotalclean-upcostofthispollutionreduction programis
| a. | $6,750 |
| b. | $13,080 |
| c. | $4,650 |
| d. | $12,960 |
| e. | $6,810 |
- Assume that the five firms in the following table each throw 5 units of pollution into the environment every day. The cost of eliminating these units of pollution is given in the table.
| MARGINALCostofEliminatingPollution | |||||
| TonsofPollution | FirmA | FirmB | FirmC | FirmD | FirmE |
| 1st | 100 | 140 | 150 | 200 | 2000 |
| 2nd | 200 | 580 | 200 | 240 | 3000 |
| 3rd | 900 | 680 | 250 | 440 | 4000 |
| 4th | 1300 | 980 | 300 | 640 | 5000 |
| 5th | 1700 | 1280 | 350 | 840 | 6000 |
Usingthetableabove,supposetheEnvironmentalProtectionAgencydecidesthattheoptimalamountofpollutionisonly15tons.Insteadofusingthesetstandardmethod,thegovernmentsells15permitstopolluteatapriceof$425each.Eachpermitallowsthefirm to pollute 1 ton. By using the permit method the total real resource costs to clean-upare
| a. | $2,090 |
| b. | $2,130 |
| c. | $6,690 |
| d. | $5,925 |
| e. | $4,650 |
9. We hear so much about the depletion of the ozone, the destruction of the rain forest, the pollution of the oceans and rivers, and the depletion of wildlife because
a. private individuals and businesses lack the time to take full account of these issues.
b. private individuals and businesses don’t care about our environment.
c. scientists are looking to make names for themselves and thereby gain a lot of publicity.
d. the media focuses on negative stories.
e. private individuals and businesses lack incentives to take full account of the consequences of their actions.
10. An externality exists when
a. some of the costs of producing a product affect people unable, within a market system, to influence how much of a product should be produced.
b. only the buyers and sellers are affected by the production of a product or service.
c. every person in a market system has a chance to influence how much of a product should be produced.
d. the benefits from consuming the service affect only the purchasers of that service.
e. the costs of producing a service affect only the sellers of that service.
11. In the figure above, assume that Dm and Ds represent the market- and social-demand curves, respectively. Which of the following is an accurate conclusion?
a. The external costs associated with providing the good are equal to P2 per unit.
b. The external benefits associated with providing the good are equal to P2 per unit.
c. The external benefits associated with providing the good are equal to P3 minus P2 per unit.
d. The external costs associated with providing the good are equal to P3 minus P1.
e. The external benefits associated with providing the good are equal to P3 minus P1 per unit.
Output Private Marginal External
per Hour Marginal Cost Benefit Cost
1 $5.00 $10.00 $ .10
2 5.20 9.25 .20
3 5.45 8.50 .35
4 5.75 7.75 .60
5 6.10 7.00 .90
6 6.50 6.50 1.40
7 7.20 6.00 2.00
8 8.00 5.50 2.80
12. In the table above, the socially optimal equilibrium would be
a. 6 units, $7.90
b. 7 units, $4
c. 5 units, $7
d. 7 units, $8
e. 6 units, $6.50
Output Private Marginal External
per Hour Marginal Cost Benefit Cost
1 $5.00 $10.00 $ .10
2 5.20 9.25 .20
3 5.45 8.50 .35
4 5.75 7.75 .60
5 6.10 7.00 .90
6 6.50 6.50 1.40
7 7.20 6.00 2.00
8 8.00 5.50 2.80
13. In the table above, if the equilibrium were determined by a free market, it would be
a. 7 units, $9.20
b. 6 units, $6.50
c. 6 units, $7.90
d. 5 units, $7.
e. 4 units, $7.15
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