Section 14

Exercise 1.12. Consider the following game. There is a club with three members: Ann, Bob and Carla. They have to choose which of the three is going to be president next year. Currently Ann is the president. Each member is both a candidate and a voter. Voting is as follows: each member votes for one candidate (voting for oneself is allowed); if two or more people vote for the same candidate then that person is chosen as the next president; if there is complete disagreement, in the sense that there is exactly one vote for each candidate, then the person from whom Ann voted is selected as the next president. (a) Represent this voting procedure as a game frame, indicating inside each cell of each table which candidate is elected. (b) Assume that the players' preferences are as follows: AnnAm Carla Ann Bob, Carla Bob Ann, Bob Carla Ann Caria Carla. Using utility values 0, 1 and 2, convert the game frame into a game. (c) Apply the IDWDS to the game of part (b). Is there a weak iterated…

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On July 1, 1965, the federal ad valorem taxes on many goods and services were eliminated. Comparing prices before and after this change, we can determine how much the price fell in response to the tax's elimination. Given an ad valorem tax of v, the tax collected on a good that sold for p was vp. If the price fell by vp when the tax was eliminated, consumers must have been bearing the full incidence of the tax. Consequently, consumers got the full benefit of removing the tax from those goods. The entire amount of the tax cut was passed on to consumers for all commodities and services that were studied for which the taxes were collected at the retail level (except admissions and club dues) and for most commodities for which excise taxes were imposed at the manufacturer level, including face powder, sterling silverware, wristwatches, and handbags (Brownlee and Perry, 1967). List the conditions (in terms of the elasticities or shapes of supply or demand curves) that are consistent with…

Suppose that some members of a population are infected with a sexually transmitted virus that causes disease X, and some are infected with another sexually transmitted virus that causes disease Y. Some members of the population may be infected with both viruses. While diseases X and Y are similar in that they are both sexually transmitted diseases, the disease X is much more harmful to its carriers than the disease Y is to its carriers. Condom use is highly effective in preventing the transmission of either disease. Suppose scientists discover a cure for the sexually transmitted disease X. This cure (a vaccination) will eliminate the virus causing the disease X from its carrier before its carrier can suffer any harm from the virus. Everybody is immediately given this vaccination against the disease X. a. What do you expect to happen to the prevalence of the virus causing the disease X in the population? Draw a graph with time on the horizontal axis and prevalence of the virus causing…

Suppose that some members of a population are infected with a sexually transmitted virus that causes disease X, and some are infected with another sexually transmitted virus that causes disease Y. Some members of the population may be infected with both viruses. While diseases X and Y are similar in that they are both sexually transmitted diseases, the disease X is much more harmful to its carriers than the disease Y is to its carriers. Condom use is highly effective in preventing the transmission of either disease. Suppose scientists discover a cure for the sexually transmitted disease X. This cure (a vaccination) will eliminate the virus causing the disease X from its carrier before its carrier can suffer any harm from the virus. Everybody is immediately given this vaccination against the disease X. What do you expect to happen to the rate of condom use in the population over time? Add a curve for the rate of condom use to your graph.

Explanation with answer

The climate policy toolkit has, to-date, mostly focused on demand side policies (i.e. policies that affect the pollution demand curve), some of which are ‘command-and control’ and others are market based (e.g. cap-and-trade schemes, carbon taxes). Suppose the government decided to issue tradeable permits for a certain form of pollution, does it matter for economic efficiency whether the government allocates the permits to firms or whether it auctions them off? Why or why not?

Let's call a committee of three people a "consumer." (Groups of people often act together as "consumers.") Our committee makes decisions using majority voting. When the committee members compare two alternatives, x and y, they simply take a vote, and the winner is said to be "preferred" by the committee to the loser. Suppose that the preferences of the individuals are as follows: Person 1 likes x best, y second best, and z third best. We write this in the following way: Person 1: x, y, z. Assume the preferences of the other two people are: Person 2: y, z, x; and Person 3 : z, x, y. Show that in this example the committee preferences produced by majority voting violate transitivity. (This is the famous "voting paradox" first described by the French philosopher and mathematician Marquis de Condorcet (1743–1794).)

Question 4: Suppose that scientists develop a way to cross tomatoes and potatoes into a new super veggie (after much debate over whether it would be called a totato or a pomato, the latter name won). There are only 6 consumers in the world that would even consider buying a pomato, each of whom wants just one, and so the scientists ask these 6 consumers how much they will pay (WTP) for one pomato. The consumers respond (truthfully) Consumer VWTP Alex 7 Ben 16 Carrie 14 Dan 24 Ellie 8 Frances 10 (1) Draw the market demand curve for pomatoes (2) Suppose the price of pomatoes is p= 10. What is the consumers' surplus? (3) If the price increases to p 16, what is the loss in consumer surplus? How much of this is due to fewer pomatoes being sold and how much is due to the higher price of pomatoes on the units that are sold?

The town of Fenerbahce has hired world‐class econometricians to investigate their criminal justice system. The researchers report an interesting finding. People who were previously detected and punished by law enforcers gain a better understanding of the functioning of the law enforcement system, and are better able to exploit laws designed to protect defendants against the state. Thus, people who have been detected and punished before are better able to avoid detection and punishment. In particular, theyreport the following facts: ‐ The offense of jay‐walking causes social harm of $100.‐ A person who has never been punished for jaywalking before faces a 0.5probability of being detected while jaywalking.‐ A person who has been punished before for jaywalking faces a probability of0.25 of being detected while jaywalking. The town wants to implement optimal punishment schemes. It is well known thateveryone in Fenerbahce is risk‐neutral and rich (i.e. not judgment proof). Moreover, the…

Ten years ago, the town of Easton decided to increase its annual spending on education so that its high school graduates would be able to earn higher wages. Now Easton has asked you to evaluate the effectiveness of the spending increase. Their data show that before the spending increase, the average annual salary of recent high school graduates was $25,000 and that now that average salary has risen to $28,500. Fortunately for your analysis, a neighboring community (Allentown) did not change its annual spending on education. Ten years ago, recent Allentown high school graduates earned an average of $22,500, and now that average is $23,750.   (a) Use a difference-in-differences estimator to determine whether Easton’s spending increase caused the wages of their high school graduates to increase. (b) What underlying assumption do you have to make in order for your estimate to be valid? What might cause your underlying assumption to be invalid? (c) This data set contains only two…

For questions 44 and 45 consider the following: The town of Fenerbahce has hired world-class econometricians to investigate their criminal justice system. The researchers report an interesting finding. People who were previously detected and punished by law enforcers gain a better understanding of the functioning of the law enforcement system, and are better able to exploit laws designed to protect defendants against the state. Thus, people who have been detected and punished before are better able to avoid detection and punishment. In particular, they report the following facts: The offense of jay-walking causes social harm of $100. A person who has never been punished for jaywalking before faces a 0.5 probability of being detected while jaywalking. A person who has been punished before for jaywalking faces a probability of 0.25 of being detected while jaywalking. The town wants to implement optimal punishment schemes. It is well known that everyone in Fenerbahce is risk-neutral and…

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Suppose there are two types of persons: high-ability and low-ability. Firms wish to use education as a screening device where they intend to pay $25,000 to workers without a diploma and $35,000 to those with a diploma. Assume it costs $8,000 of for a high-ability person to obtain a diploma. If is cost $10,000 for a low-ability person to obtain a diploma, can the firm use diploma to screen low ability from high ability worker. Explain and support your answer using math. How would your answer change it the cost of obtaining a diploma for a low productivity person were to increase to $15,000.

The following is an excerpt describing the Oregon Medicaid lottery: In 2008, Oregon implemented a limited expansion of its Medicaid program for low-income adults through a lottery, selecting names from a waiting list to fill a limited number of available spots. Those selected had the opportunity to apply for Medicaid and to enroll if they met eligibility requirements. Based on the description, you might describe the Oregon Medicaid lottery as a: randomized experiment "As if random" natural experiment a true natural experiment

The Forest Service is responsible for maintaining our commons forests, and controlling responsible access and safe usage of forest campsites and trails by the public. Currently, the forest service is trying to decide whether to increase the resources devoted to thinning parts of the forest in Eastern Washington so as to reduce the risk of wildfıres. They thus took a survey of Washington Residents to see how much they would be willing to to pay in order to have better air quality and fewer wildfires. The results of the survey would be used by the government in making budgetary decisions about tax collection and revenue allocation for forest management. How much How much How much would you be would you be would you be willing to pay willing to pay willing to pay PERSON to reduce the to reduce the to reduce the risk of forest risk of forest risk of forest fıres by 10% fires by 30% fires by 50% 50 50 30 Amy 20 20 Brian 20 15 10 Catherine 50 40 30 David 20

John and Sotiris live on trees in two different forests. They each have eight hours to work in a day. John can grow a Yam in 1 hour or raise a Zebra in 2 hours. Sotiris can grow a Yam in 2 hours or raise a Zebra in 4 hours. Both John and Sotiris consume equal numbers of Yams and Zebras. When calculating the welfare benefits of markets, the standard analysis only includes the parties involved in exchange. Using the American Opioid Crisis as an example, explain how poorly regulated markets can cause harm to third parties not involved in exchange.

Due to an increased number of patients seeking COVID-19 tests and counseling, the clinic and the counseling centre at the leading public hospital was converted to provide both health screening services and counseling services. Using all of its staff, the clinic can screen a maximum of 10 clients or it can counsel 6 clients. Using all of its staff, the counseling centre can screen a maximum of 6 clients or counsel 12 clients. Who has the absolute advantage in health screening? Who has the absolute advantage in counseling services? Who has a comparative advantage in health screening? Who has a comparative advantage in counseling services? What is the opportunity cost of counseling services?

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Answer only 2 out of the 4 questions!

What is the difference between Pareto efficiency and Hicks-Kaldor efficiency, and why is it relevant to benefit cost analysis?