Reference no: EM131142566

Academic requirements:

Answer all the question given belaw:

Public Sector Economics

1. Governments should act to further the public interest. This statement would probably receive general agreement, but it is not always clear exactly what determines when something is in the public interest. Discuss various measures of the public interest, including utilitarianism, the Pareto criteria, potential compensation, and the social welfare function. Explain each concept and the advantages and disadvantages of each.

2. What is the Coase theorem? Under what conditions will the Coase theorem's conclusions hold. Be sure to explain the importance of the distinction between small groups and large groups in the application of the theorem. What did Coase mean when he referred to the reciprocal nature of the problem with regard to his theorem?

3. What is the median voter model? Explain three ways in which the conclusion of the model can be reached. Use graphs to assist your explanation. What condition must be satisfied in order for the median voter model's outcome to be economically efficient?

4. What is the free rider problem? What is the prisoners' dilemma game? Explain the relationship between the free rider problem and the prisoners' dilemma game. What solutions are possible to the free rider problem, both inside and outside of government?

5. What is the Ricardian equivalence theorem? Explain the arguments supporting and opposing the theorem. In your explanation, be sure to make clear who bears the burden of the debt according to both sides, and the implications (e.g., regarding interest rates, investment, etc.) of both sides of the equivalence theorem argument. Use graphs to help explain how each side views the burden of the debt.

6. Explain Niskanen's theory of bureaucracy. Include in your discussion the incentives facing bureaucrats and the compare the characteristics of bureaucratic output to output in the private sector.

7. Presently the social security tax is shared evenly between employers and employees. Explain, using graphs, what difference it would make if the entire tax were paid by employees as compared to the case where the entire tax is paid by employers. Be sure that your answer clearly compares all of the results of the two cases.

8. Compare the effects of placing a per unit tax on the demanders in a market as compared to placing a tax of the same magnitude on suppliers. Carefully compare who bears the burden of the tax in each case, using graphs to illustrate the comparison. In general, how can one determine what proportion of the burden of a tax will be borne by demanders and what proportion will be borne by suppliers?

9. What is a value added tax? Explain how the amount a taxpayer owes is calculated under a value added tax. Compare a value added tax to a sales tax. Be sure that your comparison includes both the burden of the tax in each case and the administrative aspects of each tax.

10. Compare the Haig-Simons definition of income to the Fisher definition. Give an example that illustrates the difference between the two definitions and explain how much income in your example would be taxable under each of the definitions.

11. Congressional decision-making tends to resemble a distributive game in that each member of congress tries to get special interest programs passed rather than those in the general public interest.a) Explain why this is so. b) Show how this type of situation could lead to a cyclical majority, using a numerical example if possible. c) Explain why such cycles are rarely observed in the real world. d) Explain how this situation could lead to a unanimous coalition in which each member would be better off outside the coalition. Why would someone vote for something that would make him worse off than the status quo?

12. Some reasons why resources could be allocated inefficiently by the market are negative externalities, positive externalities, and collective consumption goods. Explain, using graphs, what the problem is in each case, and explain possible solutions to each problem. All of these problems might be described as arising due to poorly defined property rights. Explain the relationship of property rights to these instances where the market fails to allocate resources efficiently.

13. Philosopher John Rawls has argued that a fair society is one that would be approved of from behind a veil of ignorance. Explain what Rawls means, and more generally, explain the contractarian idea of fairness. Next, explain Pareto's concepts of social welfare and compare Rawls' vision of the social welfare with Pareto's.

14. Give a thorough explanation of the condition for economic efficiency in the production of a non-rival consumption good. Assuming that majority rule chooses the outcome most preferred by the median voter, what condition would have to exist for the outcome selected by majority rule to be efficient? What is the relationship of this condition to Lindahl equilibrium? Use graphs to help your explanation.

15. Explain how a corrective tax can eliminate the inefficiency caused by a negative externality. Use a graph to assist your explanation. Why does the optimal tax promote the efficient use of resources? After the tax is collected, should the money be paid in compensation to those who are harmed by the externality? Explain the pros and cons of compensating those harmed by an externality.

16. What is the excess burden of taxation? Why is there an excess burden, and what factors affect the size of the excess burden for a specific tax? If several goods are to be taxed, how should the taxes be distributed to minimize the excess burden of taxation?

17. What is a collective consumption good? Explain how the efficient level of production for a collective consumption good is determined, and why the market will not produce the efficient level. Relate the concept of the collective consumption good to Lindahl pricing, and explain the advantages of Lindahl pricing for collective consumption goods. You may use graphs to assist in your explanation.

18. With regard to efficiency in collective decision-making, the unanimous decision rule is analogous to market exchange in private sector decisions. Explain why this is so. Given this special status accorded to unanimity, can majority rule ever be efficient? Discuss the situations in which unanimity rule is required for efficiency and when less than unanimous approval in collective decision-making could be efficient. Use graphs to assist in your explanation.

19. During the 19th century, buffalo were hunted almost to extinction in western America, while the population of cattle grew substantially. During this period, however, people were killing and consuming far more cattle than buffalo. Explain why the buffalo population was declining but the cattle population was growing under these circumstances. Next, explain why the principle that describes the decline in the buffalo population also explains why many contemporary American cities have so much air pollution. What are some possible solutions to problems such as pollution and the potential extinction of animal species?

20. Explain the relationship between Lindahl equilibrium and efficiency in the production of a collective consumption good. Does Lindahl equilibrium necessarily imply that the good is being produced efficiently? Does efficiency in the production of the good necessarily imply Lindahl equilibrium? How is Lindahl equilibrium beneficial to the political process of agreeing on the quantity of public sector output?