MACROECONOMICS (LL)
21st Edition
ISBN: 9781260186949
Author: McConnell
Publisher: MCG
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Chapter 5.A, Problem 1AP
Sub part (a):
To determine
The net benefits of the individuals.
Sub part (b):
To determine
The net benefits of the individuals.
Sub part (c):
To determine
The net benefits of the individuals.
Sub part (d):
To determine
The net benefits of the individuals.
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Suppose there are three people in society who vote on whether the government should undertake specific projects. Let the net benefits of a particular project be $150, $140, and $50 for persons A, B, and C, respectively.
a. If the project costs $300 and these costs are to be shared equally, would a majority vote to undertake the project? What would be the net benefits to each person under such a scheme? Would total net benefits be positive?
b. Suppose the project cost $375 and again costs were to be shared equally. Now would a majority vote for the project and total net benefits be positive?
c. Suppose (presumably contrary to fact) votes can be bought and sold in a free market. Describe what kinds of results you might expect in part a and part b.
1) True-False-Uncertain. Respond to following statements as True, False, Uncertain and justify your claim.
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.
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.
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