Reference no: EM131142579

Academic requirements:

Answer all the question given belaw:

Public Sector Economics

1. Public schools are financed by tax dollars and provide a certain level of education for every student who enrolls. The tax cost for the public school is the same whether one chooses to go to public school, or go to private school, so students going to public school receive a subsidy equal to the tax cost of providing the public education. Are students who go to public school better off than if they chose to attend private school? Does the subsidy to public school students cause them to consume more education? Use a graph to help illustrate your answer.

2. Public housing provides a certain level of housing to eligible individuals at a reduced cost. For simplicity, assume that public housing is available to eligible individuals free of charge. If an individual chooses to accept the public housing, (a) will the individual be better off than if the public housing had not been available? (b) Will the individual live in better housing than if the subsidy were not available? Use graphs to help illustrate your answer.

3. Income transfer programs provide income to individuals with low incomes, but the benefits are reduced or eliminated as individuals' incomes rise. For simplicity, assume that individuals receive a certain guaranteed level of income if they have no earned income, but as their earned income rises, the amount of transfer income falls, and the transfer eventually is eliminated at a certain level of earned income. (a) Will recipients be better off participating in the transfer program as compared to not participating? (b) Will recipients have a higher level of dollar income if they participate in the program? Use graphs to help illustrate your answer.

4. Two characteristics of publicness in goods are nonexcludability and jointness in consumption. Define each characteristic, making sure to clearly differentiate them. For each characteristic, explain why in theory markets may fail to allocate good efficiently. Explain what type of government intervention might be called for in each case, and why. Then explain the inefficiencies inherent in government intervention in each case.

5. Education produces a positive externality, and this has been used as a justification for having the government subsidize education to internalize the externality. Explain the argument for the subsidy. Just because a positive externality exists does not mean that a subsidy will be efficient, even in theory, however. Explain the theoretical arguments that a subsidy may be inefficient, even when a positive externality exists, using graphs to illustrate your arguments. After examining the arguments on both sides, which side is more plausible to you? Should education be subsidized?

6. Assume that a good is taxed 25 cents per unit, and that the tax rate is doubled to 50 cents per unit. How will the revenues collected by the tax change as a result of a doubling of the tax rate? How will the excess burden of the tax change? Use a graph to help illustrate your answer.

7. Consider an excise tax put on a good in a competitive market. What happens to the amount of tax revenues collected as the tax rate on the good is increased? Explain the relationship between tax rates and tax revenues, illustrating your points graphically.

8. Discuss how the federal government budget has evolved since 1960. (a) What percentage of national income is expended by the federal government? How has this changed over the years?
(b) What are the major components of federal expenditures? How have they changed over the years? (c) What are the major components of revenues? How have they changed over the years? (d) What, if anything, would you like to see changed in the federal government's budget? Why?

9. Two types of federal grants to local governments are categorical grants, which provide a fixed sum of money for a specific purpose, and matching grants, in which the federal government matches the amount that local governments spend for a specific purpose. Describe the differences in the effects of these two types of grants. If the same amount of money is given, which type of grant gives the local government the incentive to spend more? Use graphs to illustrate your answer. Describe the flypaper effect and explain its relevance to local government expenditures that result from a federal grant.

10. How can a redistributive program be designed to help those in need, but still give recipients an incentive to become self-supporting? Using a negative income tax to illustrate your points, explain what trade-offs are involved in designing an effective redistribution program. Illustrate your ideas graphically. If you could redesign the government redistribution system, how would your ideal system deal with these trade-offs?

11. Explain the Ramsey rule. What are the arguments in favor of using the Ramsey rule to determine tax rates? What are the arguments against it? Considering the political environment within which tax laws are determined would you favor or oppose trying to make more use of the Ramsey rule to set tax rates?

12. Explain the relationship between quotas and tariffs as methods of restricting imports. Use a graph to assist your explanation. If either a tariff or a quota is going to be used to restrict imports by a certain amount, explain what groups would favor tariffs and what group would favor quotas, and why.

13. The Tiebout hypothesis suggests that producing public goods locally can be more efficient than producing them at a higher level of government. Explain why this is so. List and discuss some of the advantages of local public good provision compared to provision by higher level governments, and some of the disadvantages.

14. Explain the differences between inframarginal externalities and externalities that are relevant at the margin. Use graphs to help assist with your explanation. Some people have argued that education should be subsidized because it creates a positive externality, while others have argued that there is no efficiency reason for subsidizing education. Use the concept of inframarginal externalities to explain the arguments on both sides of this issue.

15. Explain the difference between technological and pecuniary externalities. To efficiently allocate resources, how should public policy deal with technological externalities? To efficiently allocate resources, how should public policy deal with pecuniary externalities? When are pecuniary externalities most relevant to public policy, and why are they relevant?

16. Explain the difference between the concepts of Pareto optimality and Pareto superiority. If a policy change moves the economy from a non-Pareto optimal situation to a Pareto optimal situation, does this necessarily imply an improvement in social welfare? Explain your answer, and illustrate it in an Edgeworth box diagram.

17. Throughout its history, the United States has had a two-party political system, even though there is nothing in the Constitution that even mentions political parties and there is no law that prevents additional parties from forming. Indeed, despite many small minor parties, the political system continues to be dominated by two major political parties. Explain why this is so. What changes would have to be made the the U.S. political system to make more parties politically viable. Illustrate the points you make to answer the question in a graph

18. In the private sector, economists have characterized firms as profit maximizers and developed a theory of markets based on that assumption. Typically, governments do not sell their output and there are no profits and losses from government production. What movitation for production in government bureaucracies is analogous to profit maximization in the private sector? Discuss the incentives that face bureaucrats, the environment in which their budgets are determined, and how resource allocation through government bureaucracies compares with resource allocation in markets.

19. Jet aircraft taking off and landing at commercial airports generate an externality because the noise they make disturbs those on the ground in close proximity to the airport. One way to deal with the externality would be to tax the airlines. Explain how the optimal tax would be designed, and why it would be effective at reducing the external cost. Use a graph to explain the design ofthe tax. Should the revenue collected from this tax be paid to those who own property below to compensate them for the harm they suffer? Discuss the advantages and disadvantages of using the revenue from the tax to compensate those on whom the aircraft noise is imposed.

20. Describe the bureaucratic bargaining process in which government agencies negotiate with Congress to determine the agency budget. What incentives face both those in the agency and those in Congress? How will the agency budget compare with what a competitive industry would produce? Using a graph, compare bureaucratic output with output in competive and monopoly industries.

21. With increasing awareness of long-term problems with petroleum supplies there has been some discussion of increasing the per-gallon tax on gasoline. One Senator, representing an oil- consuming state, advocates placing a per-gallon tax on the suppliers of gasoline, supporting the tax but saying that overburdened consumers deserve a break. Another Senator, representing an oil-producing state, says that energy suppliers are burdened enough already and that we do not want to create further disincentives for producers, so the tax should be placed on the demanders. Explain, using graphs to illustrate your answer, what difference it would make whether a per- gallon tax on gasoline was placed on the suppliers of gasoline or on the demanders.