Collective Decision Homework

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sratkva

Economics

Collective Desicion

SUNY at Binghamton

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Upper-level econ course, don't take this if you're not professtional tutor please.


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Collective Decisions, Econ 447, Binghamton University, Spring 2018 Homework#5 Note: You are encouraged to work together on the homework assignments, but each student needs to compose, type, and hand in the solutions separately. All assignments need to be typed (graphs and equations may be drawn neatly by hand) and the pages must be stapled together. 1. Adam and Barbara are the only inhabitants of a (very) small village. They want to determine the optimal size of a public park. The diagram below shows their respective marginal benefit curves for parks of different acreage. They want to use the Clarke mechanism to ensure that each of them reveals his/her MB curve honestly. The cost per acre is $60, and they agree that each of them pays half. In two separate diagrams, determine (a) Adam’s Clarke tax. (2 points) (b) Barbara’s Clarke tax. (2 points) Price 150 160 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0 MBBarbara MBAdam # of acres 2. Chris moves to the village before the park is built, and the (now) three villagers want to determine the (now) optimal park size. The cost per acre is $60, and they agree that each of them pays one-third. (1 point) Use the diagram below to determine Adam’s Clarke tax (This looks tricky, but you just need to follow the same logic as for the taxes in Question 1—make sure that you first derive the social MB curve when Adam is absent, and identify the socially optimal park size without his presence, given that Barbara and Chris pay only ⅔ of each acre that they build. Then proceed in the same way as in Question 1: draw Adam’s synthetic supply schedule and determine his Clarke tax as the additional cost that Barbara and Chris must pay for a park that is larger than the one that they would have chosen without Adam.) Price 150 160 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0 MBChris MBBarbara MBAdam # of acres 3. Assume that the US government has an unexpected budget surplus. Consider the following four ways of disposing of the surplus: (1) Improve schools for handicapped children. (2) Increase the pensions of firefighters. (3) Return the surplus to the taxpayers in proportion to their individual tax payments. (4) Provide startup funds to young entrepreneurs that are considered most likely to invent new socially beneficial products (e.g. cures for cancer or HIV). Briefly explain how the government might dispose of the surplus under the principles of Compensation, Reward, Exogenous Rights, and Fitness. (Identify at least one suitable principle for each case.) (2 points total) 4. Each of the two figures below shows two Utility Possibilities Frontiers: UPF1 relates to the status quo and UPF2 to a proposed new policy. Point A is the current allocation, point B will be the allocation under the new policy. For each figure, determine whether the new policy is better under the (1) Pareto criterion, (2) the Kaldor criterion, (3) the Hicks criterion, (4) the Scitovsky criterion (a) Figure 1 (2 points) Adam’s utility UPF2 A B UPF1 Barbara’s utility (b) Figure 2 (2 points) Adam’s utility UPF2 UP F A B Barbara’s utility The assignment is due on Thursday, April 12, in class. Note: I offer to post the homework scores on the course web page, using your B#. If you want your score posted this way, please write “Post score” next to your name on your answer sheet.
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Explanation & Answer

attached is my answer

Question 1:
a) We are given that the cost per acre is $60. Hence, Adam’s Clarke tax can be determined as in
the following diagram:

b) Barbara’s Clarke tax can be determined as in the following diagram:

Question 2:
It is given that the cost per acre is $60. As Chris moves to the village, Adam’s Clarke tax is now
determined as in the following diagram:

Question 3:
Firstly, under the principles of compensation, the government might dispose of the surplus as
the US government gives startup assets to youthful business visionaries that are viewed as well
on t...


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