[Solved] Assignment 219308

by

Assignment Details

Subject: Economics    / General Economics
Question
Name Public Economics 440/540
Final Exam.
March 19th 2015
Instructions. Please answer each of the four questions below in the space provided. Each question is worth
25 points. There is a bonus question worth a further 15 points.
1. This question refers to the problem of externalities
(a) Explain intuitively why the presence of externalities causes the ?rst fundamental theorem of
welfare economics to fail (b) Draw and label a diagram to illustrate your answer to part (a) then use it to explain a Pigouvian
tax 1 (c) Draw another diagram and use it to explain Coase Theorem (d) Discuss the merits of the Pigouvian and Coasian solutions to the externality problem 2 2. This question refers to the provision of a pure public good
(a) De?ne a pure public good and state and explain the condition for its e?cient provision (b) Give an intuitive explanation for why the Lindahl mechanism does not give an e?cient allocation
if voting is strategic 3 (c) Give an example of preferences over the level of public good provision such that majority voting
does not lead to a clear decision (d) Give an intuitive explanation for why the Clarke-Groves mechanism leads to truth telling 4 3. This question refers to moral hazard and adverse selection
(a) Explain and give examples of moral hazard and adverse selection (b) Why do moral hazard and adverse selection cause the failure of the ?rst fundamental theorem of
welfare economics? (c) Can you suggest any solutions to moral hazard and adverse selection problems 5 4. This question refers to the Bergson-Samuelson social welfare function
(a) State and explain the conceptual basis of the Bergson-Samuelson social welfare function (b) Draw a diagram and use it to explain why a Bergson-Samuelson social welfare optimum will be
Pareto e?cient 6 (c) If an economy is at a Bergson-Samuelson social welfare optimum will there be e?ciency in production? Explain (d) If economic allocations are not Pareto e?cient does it make sense to use a Bergson-Samuelson
social welfare function to evaluate them? Discuss 7 Bonus Question: This question is worth 15 extra credit points and is evaluated on the math
Two individuals A and B have the following preference over two goods x and y
uA = u(xA , y A , xB )
uB = u(xB , y B , xA )
Where xA + xB = x and y A + y B = y and the budget constraints are I A = xA + y A and I A = xA + y A
¯
¯
(a) Derive the conditions for Pareto e?ciency (b) Show that the market equilibrium cannot be Pareto e?cient 8

Never use plagiarized sources. Get Your Original Essay on
[Solved] Assignment 219308
Hire Professionals Just from $11/Page
Order Now Click here
Chat Now
Lets chat on via WhatsApp
Powered by Tutors Gallery
Hello, Welcome to our WhatsApp support. Reply to this message to start a chat.