Questions and Answers of Applied Welfare Economics

Presumably as the economy grows over time, it becomes easier for everyone to have their “basic needs” met. Does the Utilitarian argument lose its force in an economy where everyone has their
Give some examples of policies that could be used to reduce the inequalities associated with market-generated outcomes. Are these policies likely to increase or decrease efficiency?
Explain what factors might cause long-run differences in the returns to entrepreneurial ability.
In an analysis of globalization, two sociologists write: Not surprisingly, business people and their political allies respond to attempts to raise the floor under the lowest-paid workers with claims
Ditch-digging is a dirty, low-prestige job. The fact it is low-paying serves to disprove the theory of compensating differentials. Discuss.
One could argue that a long commute to work is an undesirable characteristic of any job. If most people live in the suburbs, what would the theory of compensating wage differentials predict about
How does product market structure impact the justness of factor payments?
What does it mean to say that a factor’s value of the marginal product is that factor’s contribution to production?
Explain how profit is the value of the marginal product of an entrepreneur.
The annual rent on a parcel of land is $2,700. The land will generate this rent from now until the end of time. What is the maximum amount you would be willing to pay to become the owner of the land?
A capitalist owns a machine that will last for two more years. The goods the machine helps produce will yield revenue of $50,000 and $40,000 with costs of $35,000 and $39,000. It will have no scrap
You win the lottery (great day!). Although it was advertised as a $2,000,000 jackpot, you discover that your winnings will be paid to you in 20 $100,000 annual installments. You will get your first
A consumer earns an income of $90,000 and $100,000 in periods 1 and 2, respectively. If the interest rate is 10 percent, draw the intertemporal budget constraint. Assume period 2’s income rises to
Should management have the right to hold so-called “captive audience” meetings? Should union organizers have the right to solicit workers on company property during regular work hours?
What are Right-to-Work laws? What are the trade-offs involved in eliminating Right-toWork laws?
Explain how a union can raise the average labor productivity at a firm. What actions of unions might reduce productivity at the firm? How might management’s response to a union influence
What impact would a system of unemployment compensation have on a union’s ability to win wage increases for its members?
How would the elasticity of demand for labor affect a union’s ability to obtain wage increases for its members?
Do some research and give a specific example of a union attempting to regulate the supply of labor to an industry, and a union attempting to increase the demand for its members’ services.
Give three examples each of immigrants being substitutes and complements to native workers.
What impact does immigration have on the country of the immigrant?
What is meant by the allocation of labor? Why is it claimed that immigrants can improve the allocation of labor in our economy?
What are the key features of the Immigration and Nationality Act? Is the act race-neutral? Explain your answer.
What would the benefits of a freer immigration policy be for the United States?
A common complaint heard for centuries in the United States and most other countries around the world is that “immigrants take our jobs and lower our wages.” What implicit model of the labor
Currently all states use partial experience rating to determine unemployment fund tax rates on employers. What would perfect experience rating mean? Should we replace partial experience rating with
What is meant by “losing a job through no fault of your own?” Can you imagine situations where workers might abuse those rules?
Does the growth of the public sector reduce the link between pay and productivity in the economy?
Use the theory of labor supply to answer the following problem. Assume a student’s grade in a course depends on the amount of time spent studying. Assume a professor, perhaps in an attempt to
Seth has a non-working spouse and three children. Seth earns $10 per hour in take-home pay and works 40 hours per week. The $400 a week Seth takes home means Seth’s family lives below the poverty
This week Sallie has 112 hours to devote to either work or leisure. Draw Sallie’s budget constraint if her wage is $25.00 per hour. Legislation mandates that any work hours over 40 for the week
Peter earns $10.00 per hour and receives no non-labor income. Draw Peter’s budget constraint for a week, assuming Peter must sleep eight hours a day. Now assume Peter inherits a trust fund that
Table 4.6 shows the short-run production function and demand curve for a firm. If labor’s wage was $92, how many workers would the firm hire? Is this labor being paid the value of its marginal
A lawn mowing firm produces output using capital and labor. In the short run the quantity of capital is fixed. The production function is shown below:a. Fill in the Marginal Product (MP) column.b.
Consider the case of a barista in a coffee shop. How can the barista’s productivity be increased?
Let the labor market in the United States consist of two types of labor, unskilled and skilled workers. Skilled and unskilled workers are complements to each other. Being able to work with unskilled
Figure 3.16 shows the demand curve for carpenters. Compute the elasticity of demand for carpenters at points A and B. W $20 $15 B $8 A D 50 175 200 Quantity of Carpenters
Draw a graph to illustrate the effect of each of the following events on wages and quantity in the market for RNs.a. Changes in immigration law make it easier for foreign nurses to come here and work
Draw a graph to illustrate the effect of each of the events below on wages and quantity in the market for registered nurses (RNs).a. An increase in the demand for RNs,b. An increase in the supply of
Surpluses of labor cause wages to fall and shortages of labor cause wages to rise. Tell a plausible story to explain both phenomena. Why are wages stable at equilibrium?
Go to the Census Bureau web page (www.census.gov) and follow the Income link. Find the data to allow you to construct a table like Table 2.1 for the current year, or any year your instructor assigns.
Society consists of 15 single individuals. Their incomes are as follows: $100,000 $75,000 $25,000 $35,000 $150,000 $80,000 $15,000 $45,000 $85,000 $90,000 $110,000 $135,000 $95,000 $70,000 $60,000
Gwendolyn owns a house, car, and portfolio of stocks with market values of $450,000, $25,000, and $100,000, respectively. She also has $2,000 in a checking account. She still owes $150,000 on her
Can you think of any examples from real life where two variables were correlated with each other, but one was not the cause of another? Your example should be true, but it can be fun. For example,
Are there any people you know (or know about) who represent achieving the American Dream? Write a short essay explaining where they came from, where they are now, and how they were able to change
What does the American Dream mean to you, and do you think that you and your generation can achieve it?
Can you think of any examples from real life where two variables were correlated with each other, but one was not the cause of another? Your example should be true, but it can be fun. For example,
Are there any people you know (or know about) who represent achieving the American Dream? Write a short essay explaining where they came from, where they are now, and how they were able to change
What does the American Dream mean to you, and do you think that you and your generation can achieve it?
Gross Domestic Product is the most well-known indicator of aggregate economic activity. Briefly discuss the major problems and issues of using GDP as a yardstick of economic performance and proxy of
Explain the difference between ordinal and cardinal utility.
The Social Welfare Function is a way to represent the well-being of a community.What assumptions have to be made to define and build a Social Welfare Function?
What are the properties of the following utility function Why in welfare economics does the assumption that individuals have a decreasing marginal utility of income is often too strong and
Design a Social Welfare Function with specific merit goods where weights are assigned to individual-based preferences versus community-based preferences. Is there any practical example of a function
In which sense Sen’s approach is similar to the Pareto sociologist one?
Consider an Arrow–Debreu economy (AD) given by E = {I, H, X, J, Y, U,d, e, p, G, W, t, ℓ, x̄, ȳ}, where all variables are defined as in Section 2.2.a. Discuss in which cases the axiomatic
Briefly discuss the most relevant critics of the two fundamental welfare theorems by providing meaningful examples. What are the main Stiglitz’s critiques on the first fundamental theorem? And the
How do lump-sum taxes and subsidies relate to first-best and second-best policies?What is the difference between policies of reform and second-best policies?
What are the main characteristics of the DS model, and how does it differ from the AD model?
What are shadow prices? Please describe the main caveats in their estimation. Under which conditions, shadow prices can be computed as Lagrange multipliers of a constrained planning problem?
Please describe how a dependent social planner operates within a multilevel government, determines a production plan, selects a policy, and calculates shadow prices.
What is a cost-benefit analysis test?
Why is it often advisable to use accounting prices as imperfect empirical proxies of shadow prices instead of running a computable general equilibrium model?
Imagine that a project uses a locally produced, but potentially importable, input that has an artificially inflated price because of high import tariffs. What approach would be the most appropriate
If a lake becomes used for bathing thanks to a remediation project, how do you value the benefit? Is it correct to consider the use-value associated with it and leave out the non-use value?
If all the citizens of a given area use bottled water in order to compensate for the bad quality of tap water, is it reasonable to believe that a project aimed at improving the tap water quality in
Imagine a group of 100,000 people faces a 1 per cent risk of dying aged 30 to 40, and a public intervention could eliminate this risk. More specifically, the intervention could be described as
Which method would use to value a private hospital room relative to a shared room?
What types of distortions are believed to drive a wedge between market and shadow wages?
What are the disadvantages of estimating shadow wages from project-specific micro-data?
What is the reservation wage? What are the alternative methods for estimating reservation wage?
Consider a conversion factor for labour equal to 0.8. What is the interpretation of such conversion factor? How can it be practically used in a Cost-Benefit Analysis?
A proposed government project would require the hiring of 100 low-skilled workers. Such workers will be picked among unemployed persons. The project offers a wage of EUR 10 per hour. Imagine the
What is the logic behind discounting costs and benefits? Is it coherent and ethical to discount the future? Is a zero social discount rate plausible and convincing?
What is the impact of the social discount rate on the project’s viability? Does a high discount rate favour projects with benefits accruing early or later in the time horizon?
What are the approaches to estimate the social discount rate? What are the key differences between these approaches?
What are the main reasons for variations in social discount rate policies of various countries around the world? Why developed countries generally apply lower rates while developing countries have
Why is the use of time-declining discount rates advocated in the literature? Assume project A will result in net benefits of EUR 1 billion in 200 years and project B will result in net benefits of
What are the arguments for including an analysis of the distribution impact of a project or a policy?
What is the Kaldor–Hicks criterion or test? What is the difference between the Pareto principle and the Kaldor–Hicks criterion? What are the advantages and the disadvantages of such criterion?
Suppose an agency has conducted the CBA for three alternative projects. The results of the CBAs are reported in the following table in millions of Euros:Consider that Group A contains households with
How can welfare weights be derived in a DS framework?
What is the definition of social affordability? Why and when is it relevant for project evaluation?
What is the difference between risk and uncertainty?
What is the difference between sensitivity and risk analysis?
The investment cost of a flood prevention project is EUR 400 million. The annual net benefit will depend on the amount of rainfall: EUR 10 million in a “normal” year, EUR 25 million in a
What are the different approaches to test the sensitivity of a CBA model?
What are the basics steps in performing Monte Carlo simulations?
What are the main differences between the CBA approaches proposed by the Green Book and EC Guide?
What is the practice of CBA in the USA and France?
How has the role of CBA changed in the EU context?
What are the peculiarities of CBA approach adopted by the EIB?
How has the World Bank approach to CBA been changing over the years?
Which are the main reasons of observed ex-ante/ex-post deviations of CBA results?Discuss the possible measures suggested by the literature to mitigate potential forecasting biases and improve CBA
If a complex infrastructural project has been implemented in three different phases with three different financing decisions, would you carry out three different ex-post CBA for each of the phases or
An investment aimed at introducing an augmented reality solution to improve the experience of a museum visit is ex-post evaluated using a CBA. A contingent valuation survey is carried out to museum
An airport expansion is implemented during a period of positive global economic prospects and expected increase in the demand of air traffic, and ex-post evaluated just after the Covid-19 pandemic.
If a project with a high ex-ante ERR experiences slight cost overruns due to implementation delays but a rapid take up of the service after the construction, at a level which is well beyond the
What are the purposes and the key components of an RIA?
Which are the typical costs and benefits assessed in an RIA?

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