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Corporate Finance
Some privately run airports provide amenities such as pod hotels, which enable fliers to nap between flights. These amenities are generally not available at publicly run airports. Given this, would
Several years ago, some citizens of the town of Manchester, Vermont, decided to launch a school fund- raising campaign. A private group of citizens decided how much every household and business
In order to respond to the tastes of its patrons, Fairfax County Public Library discards books that have not been checked out in two years in order to make space for more popular books [Miller,
Private military firms provided much of the logistical support to American troops in Afghanistan and Iraq, and some people have advocated using such troops to help stop the genocide being carried out
Suppose That there are only two fishermen, Zach and Jacob, who fish along a certain coast. They would each benefit if lighthouses were built along the coast where they fish. The marginal cost of
A lone shepherd can graze 10 sheep per year in a meadow. Each additional shepherd who uses the meadow reduces the number of sheep that can be maintained by one per shepherd. If a person would rather
Britney and Paris are neighbors. During the winter, it is impossible for a snowplow to clear the street in front of Britney’s house without clearing the front of Paris’s. Britney’s marginal
Airlines now charge passengers a fee for each piece of checked luggage, but they do not charge for carry- on luggage brought onto the plane. If overhead luggage containers fill up, the airline then
In Austin, Texas, a comedy club complained to its landlord that its performances were being interrupted by the boisterous congregation of a church within the same building. The landlord asked the
During the Democratic presidential primary campaign in 2008, Governor Bill Richardson said he favored a cap- and- trade approach for car-bon regulation rather than a carbon tax because the latter is
In the following figure, the number of parties that Cassanova gives per month is measured on the horizontal axis, and dollars are measured on the vertical. MCp is the marginal cost of providing
Caithness Energy, a big company from New York, is building wind farms in eastern Oregon. Prior to construction the company offers residents $ 5,000 each to sign a waiver saying they will not complain
Denmark recently instituted a “ fat tax,” which charges about $ 3 per kilogram of saturated fat in food. One commentator criticized the tax as inefficient, because it taxes an input to health
For each of the following situations, is the Coase Theorem applicable? Why or why not?a. A farmer who grows organic corn is at risk of having his crop contaminated by genetically modified corn grown
Some observers have argued that importing oil makes the United States hostage to the policies of Saudi Arabia and other countries in the Middle East. This complicates US foreign policy.a. Explain why
In India, a drug used to treat sick cows is leading to the death of many vultures that feed off of dead cattle. Before the decrease in the number of vultures, they sometimes used to smash into the
American suburbs are expanding to more rural areas at the same time as pig farms are expanding in size [ Economist , 2007d, p. 36]. The smells emanating from the massive amounts of pig manure
The private marginal benefit for commodity X is given by 10 – X , where X is the number of units consumed. The private marginal cost of producing X is constant at $ 5. For each unit of X produced,
Suppose that two firms emit a certain pollutant. The marginal cost of reducing pollution for each firm is as follows: MC 1 = 300 e 1 and MC2 = 100e2 , where e 1 and e2 are the amounts ( in tons) of
Figure 5.11 demonstrates the efficiency implications of using cap- and- trade versus an emissions fee when costs are higher than expected and marginal social benefits are inelastic. Figure 5.12 does
Suppose there are five people— 1, 2, 3, 4, and 5— who rank projects A, B, C, and D as follows:a. Sketch the preferences, as in Figure 6.2 .b. Will any project be chosen by a majority
Three voters, A, B, and C, will decide by majority rule whether to pass bills on issues X and Y. Each of the two issues will be voted on separately. The change in net benefits (in dollars) that would
In 2005, Kuwaiti women won the right to vote in parliamentary elections. Indeed, women voters now outnumber men voters in Kuwait because women are automatically registered while men have to register
In 1998, the people of Puerto Rico held a referendum in which there were five choices— retain commonwealth status, become a state, become independent, “ free association” ( a type of
Some members of the city council in Washington, DC, recently proposed requiring every taxi to have a medallion, which is essentially a permit to drive a cab. Under the proposal, the number of
Assume that the demand curve for milk is given by Q = 100 - 10 P , where P is the price per gallon and Q is the quantity demanded per year. The supply curve is horizontal at a price of 2. a.
Philip Morris, a market leader in the tobacco industry, supported a 2009 law that allowed the Food and Drug Administration to curb cigarette advertisement [ Wall Street Journal, 2009]. Which model
Consider a society with three people (John, Eleanor, and Abigail) who use majority rule to decide how much money to spend on schools. There are three options for spending on a public park: H (high),
What are the different rationales given for government provision of education? Explain whether the rationales have different implications for government provision of higher education versus primary
Many studies find that higher levels of education quality (as measured by test scores) in-crease growth rates of national income. What are the implications of this finding for whether or not
One commentator suggested that the government should give loans for higher education, and the loans should be financed by charging recipients “ a lifelong flat- rate tithe on all earnings” so
The analysis surrounding Figure 7.1 assumes that public schooling is a “take- it- or- leave- it” option. That is, individuals are not allowed to supplement public education with private lessons.
Officials at California University of Pennsylvania recently argued that wealthier students should pay higher tuition, and the revenue should be used to offer more scholarships to poorer students
Suppose a family with only one child earns $50,000 per year and live in a community without publicly provided education.a. Draw the family’s budget constraint showing the tradeoff between quantity
Suppose a state is considering whether to require that all public school teachers have a master’s degree. Currently, only 40 percent of the teachers in the state have such a degree.a. A researcher
In 2006, the state of Indiana instituted changes at branches of the Bureau of Motor Vehicles that allegedly reduced customer wait times from an average of 61 minutes to about 7 minutes. How should
A project yields an annual benefit of $ 25 a year, starting next year and continuing forever. What is the present value of the benefits if the interest rate is 10 percent? Generalize your answer to
Suppose that you are planning to take a year vacation to bike across the United States. Someone is willing to sell you a new bicycle for $ 500. At the end of the year, you expect to resell the
Bill rides the subway at a cost of 75 cents per trip, but would switch if the price were any higher. His only alternative is a bus that takes five minutes longer, but costs only 50 cents. He makes 10
Suppose that the government is debating whether to spend $ 100 billion today to address climate change. It is estimated that $ 700 billion of damage will be averted, but these benefits will accrue
The international space station is scheduled to de-orbit and expire in a few years. Supporters of maintaining the space station beyond this time argue that one should take into account the money that
A satirical essay recently advocated forcing taxi companies to switch to rickshaws, which are small two- wheeled taxis pulled by a runner or bicyclist. The authors note that this would create new
According to Viscusi and Gayer [2005], regulations in the United States vary greatly in the cost per each life they save. For example, the regulation to install passive restraints in vehicles has a
Consider carefully the following quotation: “[E] conomists seem always to talk about the cost of medical care, as if that kind of spending were a bad thing. After all, where does the money go? To
Federal law allows workers who leave a job to continue to participate in the health insurance they were receiving through their previous employer. However, they have to pay the full monthly premium
After removing all its traffic lights, the Dutch town of Drachten saw a decline in traffic fatalities. With the traffic lights, there was one road death every three years, but since their removal
A recent study found that the price elasticity of demand for medical care is – 2.3 [Kowalski, 2009]. If this estimate is correct, what does the existence of a coinsurance rate of 20 percent do for
Tennessee provides insurance coverage for up to $ 25,000 in annual health expenses. Of the $ 25,000, the most that can be spent on hospital bills is $ 15,000. Expenses above these thresholds are not
Suppose that an individual’s demand curve for doc-tor visits per year is given by the equation P =100 – 25 Q , where Q is the number of doctor visits per year and P is the price per visit.
To work this problem, you’ll need a calculator that can take logarithms or a spreadsheet program. Suppose that your utility function is U = ln( 4 I ), where I is the amount of income you make in a
Suppose that your city government is interested in reducing littering. Currently, there is a $ 100 fine for littering and there is a 10 percent probability of being caught if you litter. The city is
In 1997, many Health Maintenance Organizations (HMOs) suffered a decline in the value of their stocks. One newspaper account stated, “Just when HMOs seemed to offer an answer to the intractable
In the Czech Republic, people are not directly charged for doctor visits or hospital stays. In-deed, the country’s constitution says that “citizens have on the basis of public insurance the right
In Boca Raton, Florida, doctors frequently lock their doors at lunch in order to prevent Medicare patients from crowding into the office while they’re away. One doctor commented that these patients
When the Medicare prescription drug benefit was under legislative consideration, some suggested that the program should require individuals to decide about whether to accept the benefit when they
Medicare recipients can purchase supplemental private insurance (known as Medigap insurance ) to fill the gap in coverage left by Medicare. This gap includes copayments, deductibles, andprescription
The analysis surrounding Figure 10.5 assumes that a person receiving government health insurance is not allowed to purchase supplemental private insurance. Show how the diagram must be modified if,
The three panels in Figure 10.5 show instances in which health insurance either increases or stays the same with the introduction of government-provided insurance. Diagram a set of indifference
1. In a test for asymmetric information in the French auto insurance market, Chiappori and Salanié [2000] look at the relationship between the comprehensiveness of an individual’s policy and the
As part of his privatization plan to reform Social Security, Nobel laureate Edward Prescott advocated that personal accounts be made mandatory in order to prevent rational individuals from
In 1990, the ratio of people age 65 or older to people ages 20 to 64 in the United Kingdom was 26.7 percent. In the year 2050, this ratio is expected to be 45.8 percent. Assuming a payas you go
In Brazil, the introduction of Viagra has contributed to a sharp increase in the number of elderly men who marry young women. As is the case in the United States, the Brazilian social security system
In her novel Sense and Sensibility, Jane Austen wrote, “If you observe, people always live forever when there is any annuity to be paid them.” Relate this quotation to the issue of adverse
The discussion surrounding Equation (11.1) noted that problems can arise in maintaining the same replacement ratio in a population in which the dependency ratio is growing. Suppose that instead of
Discuss: “Over the long term, the rate of return to stocks is greater than the rate of return to government bonds. Therefore, it would be easier to care for future retirees if the Social Security
Consider a model in which an individual lives only two periods. The individual has diminishing marginal utility of consumption and receives an income of $ 20,000 in period 1 and an income of $ 5,000
Figure 11.5 assumed that the implicit rate of return from Social Security was the same as the private rate of return available to Liang from private savings. Assume now that Social Security has a
Discuss the following quotation: “The ongoing effort to partially convert Social Security from a payroll tax financing to income tax financing— by further cutting the payroll tax . . . and
Under one proposal for Social Security reform, younger workers would be able to divert up to $ 1,000 of their payroll taxes into an individual account. However, this diversion of funds would be in
“ I don’t care how rich the very rich are. I care if they became rich in an unethical way, or if they use their riches in a particularly vulgar or revolting way. . . . I wouldn’t mind if they
Suppose there are only two people, Simon and Charity, who must split a fixed income of $ 100. For Simon, the marginal utility of income is MUs = 400 -2Is whereas for Charity, marginal utility is MUc
President Vladimir Putin of Russia proposed re-placing in- kind subsidies such as free public trans-portation and rent- free apartments for government workers with cash subsidies of between $ 20 and
The Census Bureau recently created a new supplemental poverty measure, which defines the poverty threshold as the amount of money that the poorest third of Americans spend on food, clothing, shelter,
The last thirty years has seen an influx of low-income immigrants into the United States. How would this affect the various distributional and poverty measures discussed in this chapter?
Would a government program that transferred income from the middle class to both the poor and the rich be supported by someone with the maximin social welfare function?
An economy consists of two individuals, Lynne and Jonathan, whose utility levels are given by U L and U J , respectively. a. Suppose that the social welfare function is W =UL+ UJ True or false:
Consider the model of an in- kind transfer in Figure 12.3. Suppose that it is illegal for a recipient of the cheese to sell it. Nevertheless, there is a black market, where cheese can be sold for $ 1
Sherrys utility is US and her income is YS. Marshas utility is UM and her income is YM. Suppose it is the case that:Define the Pareto efficient redistribution, and explain why
In California, a welfare recipient can earn $ 225 per month without having her benefits reduced. Beyond $ 225, benefits are reduced by 50 cents for every dollar of earnings. Consider Elizabeth, a
Suppose you wanted to conduct an econometric study of the impact of Head Start attendance on future earnings. You decide to define your treatment group as those children who attended Head Start and
A commentator recently suggested the following welfare reform: “Scrap the failing welfare programs. . . . Ensure that everyone has a basic income. Then simplify the tax code to restore the
Philip’s demand curve for housing is shown in the following figure. (Assume that quantity of housing is measured simply by the number of square feet. Other aspects of quality are ignored.) The
SNAP benefits are phased out in a complicated fashion that varies from state to state. However, at some point near the poverty line, SNAP benefits worth about $ 1,250 are suddenly lost. Ignoring
In the analysis of TANF’s work incentives in Figure 13.4 , the individual continues to work while receiving welfare. Reproduce the budget constraint from that figure, and sketch a set of
The Section 8 program for housing assistance discussed in this chapter in effect shifts out the demand curve for low income housing in a given community. Draw supply and demand diagrams that are
Consider Eleanor, who qualifies for the earned income tax credit as depicted in Figure 13.8. Suppose that Eleanor can earn $ 8 per hour. Taking into account the EITC and ignoring other aspects of the
Since the 1980s, individuals’ UI benefits have been subject to the federal personal income tax (but not Social Security taxes). However, in 2009, the taxation of UI benefits for certain individuals
The Affordable Care Act of 2010 provides health insurance subsidies to families with incomes between 134 percent and 400 percent of the federal poverty line. For example, a family of four headed by a
The state of Texas recently enacted a $ 5 per-customer tax on strip clubs [Fernandez, 2011]. Discuss the likely incidence of such a tax. Use an appropriate diagram as the basis for your discussion.
Consider a society with only two people— one rich and one poor— who have the same utility functions. These utility functions exhibit diminishing marginal utility. Suppose that taxes are set such
For commodity X , average cost is equal to marginal cost at every level of output. Assuming that the market for X is competitive and the demand curve is linear, analyze the effects when a unit tax of
In an editorial entitled “Truth and Lies About Medicare,” the New York Times (August 19, 2012, p. SR10) discussed the financing of the Affordable Care Act of 2010, and stated: “Anda further
In an effort to reduce alcohol consumption, the government is considering a $ 1 tax on each gallon of liquor sold (the tax is levied on producers). Suppose that the demand curve is QD = 500,000 -
Suppose that the demand curve for a particular commodity is QD =a- bP , where QD is the quantity demanded, P is the price, and a and b are constants. The supply curve for the commodity is QS =c- dP ,
Suppose that the income tax in a certain nation is computed as a flat rate of 5 percent, but no tax is levied above $ 50,000 in taxable income. Taxable income, in turn, is computed as the
Assume that in a given country, tax revenues, T , depend on income, I , according to the formula T=4000+.2I Thus, for example, when a household has an income of $ 50,000, its tax burden is - 4,000+
In 2011, the Cuban government enacted an 8 percent tax on the purchase of real estate, with the tax “split by the buyer and seller” [Cave, 2011]. Is it likely that the tax will actually be split
US politicians from both parties occasionally propose cutting the federal gasoline tax (which is a unit tax) only during the summer months, when prices tend to increase. Assume that gasoline refiners
Consider a society with only two people, one with an income of $ 200,000 and one with an income of $ 20,000. Assume that under the current tax system, the rich person pays $ 50,000 in taxes and the
Which of the following is likely to impose a large excess burden? a. A tax on land. b. A tax of 24 percent on the use of cellular phones. (This is the approximate sum of federal and state tax rates
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