3. Suppose that the bureaucrats who run the Defense Department are budget maximizers. In dealing with Congress, the bureaucrats announce a price p per unit of national defense and Congress gets to choose the level of defense (denoted z). Assume that the Dz curve, which represents Congress' demand for z, is given by Dz = 16 – z. Suppose the true cost per unit of national defense is 3 (i.e., c = 3). Find the socially- optimal level of defense. bureaucrats, and the resulting level of z chosen by Congress. Is national defense underprovided, overprovided, or optimally provided? Is part of the budget wasted by the bureaucrats? If so, how much is wasted? a) Then, find the value of p that is announced by the b) Suppose instead that c = 12. Repeat part (a) for this case.
3. Suppose that the bureaucrats who run the Defense Department are budget maximizers. In dealing with Congress, the bureaucrats announce a price p per unit of national defense and Congress gets to choose the level of defense (denoted z). Assume that the Dz curve, which represents Congress' demand for z, is given by Dz = 16 – z. Suppose the true cost per unit of national defense is 3 (i.e., c = 3). Find the socially- optimal level of defense. bureaucrats, and the resulting level of z chosen by Congress. Is national defense underprovided, overprovided, or optimally provided? Is part of the budget wasted by the bureaucrats? If so, how much is wasted? a) Then, find the value of p that is announced by the b) Suppose instead that c = 12. Repeat part (a) for this case.
Chapter13: General Equilibrium And Welfare
Section: Chapter Questions
Problem 13.1P
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Transcribed Image Text:3. Suppose that the bureaucrats who run the Defense Department are budget maximizers. In
dealing with Congress, the bureaucrats announce a price p per unit of national defense and Congress
gets to choose the level of defense (denoted z). Assume that the Dz curve, which represents
Congress' demand for z, is given by Dz = 16 – z.
Suppose the true cost per unit of national defense is 3 (i.e., c = 3). Find the socially-
optimal level of defense.
bureaucrats, and the resulting level of z chosen by Congress. Is national defense
underprovided, overprovided, or optimally provided? Is part of the budget wasted by
the bureaucrats? If so, how much is wasted?
a)
Then, find the value of p that is announced by the
b)
Suppose instead that c = 12. Repeat part (a) for this case.
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