notes about Public Finance Essay

1824 Words Dec 7th, 2013 8 Pages
Name -----------------------------------ID# -----------------------------------Public Finance
Homework 2
Due in class – October 28
There are 20 multiple-choice questions, each is worth 5 points for a total of 100 points plus one extracredit question. Please, write with pen, print and staple this HW.
I. Externalities
Problem: Firms A and B each produce 80 units of pollution. The federal government wants to reduce pollution levels. The marginal costs associated with pollution reduction are MCA = 50 + 3QA for firm A and MCB = 20 + 6QB for firm B, where QA and QB are the quantities of pollution reduced by each firm.
Society’s marginal benefit from pollution reduction is given by MB = 590 – 3Qtot, where Qtot is the total reduction in
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Does this vary depending on the fraction of would-be unemployed workers hired for the project?

2 million
4 million
3 Million
It depends on the salary
None of the above

3. How does the opportunity cost of a government purchase vary depending on whether the market for the purchased good is perfectly competitive or monopolistic?
a) In a perfectly competitive market, the price will equal the marginal resource cost. It corresponds to the opportunity cost.
b) In a monopolistic market, the price will be greater than marginal cost and thus than the opportunity cost
c) The additional price paid to a monopolist is thus a transfer to the monopolist, not a benefit nor a cost d) The opportunity cost should be calculated as the resource cost of producing the input.
e) All of the above

4. One approach to calculating the value of life involves the use of compensating differential studies.
What informational problems make these studies difficult to carry out?
a) A researcher would not be able to distinguish that part of the compensating wage differential that is attributable to increased risk and that part of the differential that is attributable to other amenities. b) A researcher will be unable to observe differences in risk attitudes. If workers who tend to be risk-takers are more likely to accept jobs with a high degree of risk, the compensating wage differential will reflect only the value to these workers and will

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