ECON4520
Koford
Exam 02 Questions for Review
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
k.
l.
m.
n.
o.
p.
q.
r.
s.
What are the characteristics of public goods?
How do public goods differ from pure private goods?
What does nonrival mean? What does nonexclusion mean? Give examples of each.
What does price-excludable mean?
How do you find the social benefit curve for a public good? For a private good?
What is the efficiency condition for a public good?
What is the point behind figure 4.1? Figure 4.2? Figure 4.3? …
What is a Lindahl Equilibrium? What is a Lindahl Price?
What is a free rider? Explain how the free rider problem varies with the number of
people involved
What is a tax share
What is a political equilibrium?
Why don’t some people vote?
What is rational ignorance? Give several examples.
Who is the median voter?
What is the cause of cycling in pair wise elections?
What is Arrow’s impossibility theorem?
What is logrolling? What is Implicit logrolling?
Describe the economics of Special interest groups/lobbyists.
Bill’s demand for hamburgers (a private good) is Q = 20- 2P and Ted’s demand is Q = 10
– P (Note, How would you do this with three people rather than two?).
a. Suppose that hamburgers are private goods. Write down an equation for the social marginal
benefit of the consumption of the hamburger.
b. Now suppose that hamburgers are a public good. Write down an equation for the social
marginal benefit of hamburger consumption.
c. Assuming that hamburgers are public goods and that the marginal cost of production
is $12.5.
i.
What is the socially optimal quantity of hamburgers?
ii. At the socially optimal quantity, what is the Lindahl for Bill?
iii.
At the socially optimal quantity, what is the Lindahl price for Ted?
t. What are the determinants of a political equilibrium (there are 5 that we talked about)?
u. What is the point of figure 5.2? What is the point of figure 5.9?
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v. Condominium owners’ marginal benefit for landscaping services are in the table below.
Assume that marginal cost of landscaping is constant at $350 per gardener.
a.
Marginal Benefits for Each Gardner
Voter
1
2
3
4
Mike
325
275
225
175
Jan
225
150
75
0
Franklin
75
50
25
0
Susan
75
50
25
0
Megan
50
25
0
0
If eachVertical
voter is assigned
what is the350
political equilibrium
under
Sum a tax share
750of $50, 550
175
majority rule?
b. Discuss why this equilibrium does not result in the efficient output of gardening services.
c. Describe what the Lindahl Equilibrium would be.
w. When local telephone companies wish to raise the rates they charge to phone customers, they
must first argue their case at a public hearing before a regulatory body. How does the free
rider problem explain why telephone companies are usually successful in getting permission
to raise their rates?
x. The average cost of landscaping services for members of a condominium community is $350 per
week. Assume that the quantity of landscaping services is perfectly correlated with the number of
gardeners per week. Suppose the community consists of seven residents, each with identical marginal
benefit curve for landscaping services. The marginal benefit of the first gardener is $100 per resident.
a. How many gardeners would be hired if their services were sold in a market to individual
buyers at a price of $350 per week? Explain why the market arrangement is inefficient.
b. Assume that the efficient number of gardeners is three per week. What is the political
equilibrium under majority rule if each voter is assigned a tax share of $50 per gardener per
week? Does the political equilibrium under majority rule differ from the Lindahl
equilibrium? (Hint: It is always a good idea to draw it out. Take time to extract from the
problem the information necessary to construct the marginal benefits schedule for each
individual. You need two points to draw a straight line and from the scenario given, you can
find two such points.)
Vocabulary
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Bureaucracy
Median voter
Median Voter rule
Most-Preferred political outcome
Multi-peaked preferences
Political Equilibrium
Public Choice
Rational Ignorance
Single-Peaked Preferences
Special interest Groups
Tax Shares
12.
13.
14.
15.
16.
17.
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Free Rider
Congestible public good
Nonexclusion
Nonrival in consumption
Private good
Public good