Explain, illustrate and evaluate the Clarke-Groves tax mechanism as a way of overcoming the preference revelation problem associated with provision of a pure public good
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Explain, illustrate and evaluate the Clarke-Groves tax mechanism as a way of
overcoming the preference revelation problem associated with provision of a pure
public good
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- Explain the extent of the applicability of social political theory in any economy in public financeExplain the implications of this efficiency condition for financing the public good provision. Why does a preference revelation problem emerge?Suppose that gunk has marginal benefits of reduction equal to 20 − 2x and marginal costs of reduction equal to 5 + x − 2, where x is the tons of gunk reduced. Graph the MB and MC curves to find the efficient level of gunk reduction.As a result of imperfect information, regulators are considering two inefficient policies: a tax 10 percent below the efficient tax level and a marketable permit system with the number of permits to be issued 10 percent below the efficient reduction level. Use your graph to show the monetary loss to society as a whole of the different policies. Which is more efficient?Suppose that regulators did not know exactly where the MB curve lay, but did know that gunk was a threshold pollutant. Should they use a tax or permit system if they are interested in efficient regulation? Why?
- 1) True-False-Uncertain. Respond to following statements as True, False, Uncertain and justify your claim. Answers that do not provide justification will receive zero points. According to the Coase Theorem, government intervention is needed to solve externalities. It always makes sense when a public good is financed by the government. If A is Pareto efficient and B is Pareto inefficient, A must be a Pareto improvement over B. According to Arrow’s impossibility theorem, a democratic society will always make consistent decisions.Adam Smith proposed taxing ‘Sugar, rum and tobacco’ because they are: “nowhere necessaries of life” “objects of almost universal consumption” In consumer theory economics, what is the difference between a necessity and a luxury good. What is the likely difference in the tax revenue obtained from a tax imposed on a necessity versus a luxury good? Explain and illustrate with appropriate figures. Question Requirements: Identify the difference between a necessity and luxury and provide an example. Highlight ability to identify the link of this definition to tax revenue. Highlight ability to encapsulate this concept precisely using correctly drawn figure.Suppose the marginal cost of a pure public good increases as more is purchased by a community. Prove that the Lindahl equilibrium will result in a budget surplus at the efficient annual output of the pure public good
- Williamson defines the net governance costs of a transaction as: NGC = A(k,¯Q) − T (k, ¯Q) where A(k, ¯Q) is the agency cost of "making", and T (k,¯Q) is the transaction cost, of "buying" ¯Q units of an input, given the degree of asset specificity k. Both these functions are increasing in k, but T (k,¯Q) increases faster therefore NGC is decreasing in k. Let's assume that; NGC(k,¯Q) = 0.1• ¯Q - (¯Q /10) • k (a) At what value of k is NGC = 0 (given that ¯Q> 0). What does this mean? (b) The net production costs is: NPC = I (k, ¯Q) − P(k, ¯Q), where I (k, ¯Q) is the production cost of making, and P (k, ¯Q) is the market price, i.e., the cost of buying. Let's assume that NPC is given by the following expression; NPC = (1000/¯Q ) • (1/k) Assume that ¯Q= 100, plot this function in a diagram,…In a recent benefit-cost analysis of a proposed regulation that generated negative net benefits in the present but positive net benefits in the future, the government used a 5% social discount rate. If it had instead used a 3% social discount rate, the net present value of the policy would have been ______; if it had used an 8% social discount rate, the net present value would have been ______. Select one: a. lower; lower. b. lower; higher. c. higher; higher. d. higher; lower.Suppose the market demand for milk is Qd = 40 – 4P Where Qd is millions of gallons demanded and P is price per gallon. Suppose the market supply for milk is Qs = - 40/3 + 20/3P Suppose demand for milk is relative elastic and demand for gasoline is relatively inelastic. Holding all else constant, A.taxing milk will generate lower deadweight losses than the same tax on gasoline. B.taxing milk will generate the same deadweight losses relative the same tax on gasoline. C.taxing milk will generate greater deadweight losses than the same tax on gasoline.
- The annual market marginal demand curve for electricity is MB=400-1.5Q. The annual marginal cost curve is MC=50+Q. The government is considering whether to build one of three plants. The first will have a maximum production capacity of 50 units of Q; the second a maximum capacity of 100 units, and the third, a maximum capacity of 200 units. Plants need to be operated at maximum capacity; otherwise, excess investment cost (not depicted in the diagram) will be incurred. Given this background: What is the annual benefit of the 50-unit plant? What is the annual cost? What is the annual net benefit?A market has a demand function given by the equation Qd=180-2P and and a supply function given by the equation Qs=-15+P. The market is government regulated with a price support per unit and production quotas. (a)If the price is set at $72 per unit, what production quota is needed to make sure there are no shortages or surpluses? (b) considering the price support and the quota, calculate the consumer surplusSuppose the costs of an environmental pollution-control program are expected to be equal to $80 per year, and that benefits will be $50 per year for 50 years, then $150 per year thereafter. At a discount rate of 4 percent, what are the net benefits of this program for the next 100 year? What would the net benefits be at a discount rate of 2 percent? Comment on the difference.