1) Market structure and externalities. The inverse demand curve is given as p=92-q. The supply curve is p=20+3q.

1. What is the equilibrium price quantity pair if the market structure is perfectly competitive?

1. If there is a marginal externality generated by production of the good equal to 4*q (MC^E=4*q), what is the socially optimal price quantity pair?

1. What size specific tax placed on producers can be used to replicate the socially optimal outcome?

1. What is the value of the deadweight loss of the perfectly competitive outcome compared to the socially optimal outcome?

2) Types of Goods.

a) What type of good goes in which blank?

	Rival	Non Rival
Exclusion
Non Exclusion

b) Illustrate how deriving the aggregate demand curve for a public good differs from deriving the demand curve for a private good, and explain how this difference relates to your answers to (a).

Aggregate demand for a private good:

Aggregate demand for a public good:

3) Public goods.Syracuse is considering putting a Disc (Frisbee) golf course in Barry Park. It will cost $1500.00 per hole / basket.There are three people left in Syracuse.Paul has a willingness to pay per hole (h) defined by WTP_P =$2300-100h. Reese has a willingness to pay per hole defined by WTP_R =$750-75h.Nichole has a willingness to pay per hole defined by WTP_N =$575-25h. Courses usually are constructed to be either 9 or 18 holes / baskets long.

1. If each hole / basket costs $1500 to install and we make no effort to control for the free rider problem, is any individual willing to privately provide a 9 hole / basket course?Identify who, and why or explain why not?

1. If we can control for the free rider problem, is societal willingness to pay high enough that we could justify installing a 9 hole / basket course? Show your work.
   1. Each household votes on each proposal. How will they vote? (circle)

4) Tax and subsidy policy.

a. Illustrate on a supply and demand graph a specific tax of size placed on consumers.

b. Illustrate on a supply and demand graph the impact of an ad valorem tax rate placed on consumers.

c. Illustrate on a supply and demand graph the impact of a subsidy of size s given to producers.

5) True or False

Statement	The statement is (circle the correct answer)
According to the Coase Theorem concerning negative externalities, in the absence of transactions costs, and with symmetric information, the initial assignment of property rights does not matter in determining the efficient allocation of resources.	True False
As the Gini coefficient increases, the degree of income inequality declines.	True False
In the presence of a positive externality, the perfectly competitive market quantity will be lower than the socially optimal quantity.	True False
According to economic theory, under perfect competition in input markets the rental rate of capital is equal to the marginal product of capital.	True False
Rent is the amount a producer is compensated over the minimum amount they would have been willing to accept to produce a given unit of output.	True False
In the presence of a negative externality, the size of the Pigouvian tax is equal to the marginal cost of the externality at the perfectly competitive outcome.	True False
A multiplicative social welfare function increases as individual levels of utility increase but decreases for a given average level of utility as inequality increases.	True False
Adverse selection is when provision of insurance induces changes in behavior that make use of insurance more likely	True False

6) Public goods, voting, and benefit cost.

A community of five people is voting to decide on public good provision. There are three proposals:

Proposal A: Build a moat around the community and fill it with alligators to prevent anyone entering or exiting. Total cost is $4,000 ($800 each).

Proposal B: Build a stage in the town square, cover it so it can be used in all weather, and install a state-of-the-art Karaoke machine. Total cost is $5000 ($1,000 each).

Proposal C: Install a statue of the town's founder, Ebenezer Crumblebucket, in the town square to honor his memory. Total cost is $7,500 ($1,500 each)

This table records each household's WTP for each proposal.

Household Name	Proposal A- moat ($800 each)	Proposal B-stage ($1,000 each)	Proposal C-statue ($1,500 each)
Crumblebucket	$600	$200	$7,000
Lancelot	$2,000	$1,100	$1,000
Kravitz	$200	$1,500	$200
Crumblebucket-Kardashian	$900	$1,000	$3,000
McPeak	$300	$100	$1,300

	Proposal A - Moat	Proposal B- stage	Proposal C- statue
Crumblebucket	Yes No	Yes No	Yes No
Lancelot	Yes No	Yes No	Yes No
Kravitz	Yes No	Yes No	Yes No
Crumblebucket-Kardashian	Yes No	Yes No	Yes No
McPeak	Yes No	Yes No	Yes No

b) What is the sum of the WTP minus the cost of each project?

Proposal A- moat	Proposal B - stage	Proposal C - statue

c) Did voting lead us to select the economically efficient outcome?Explain why or why not.

7) Syracuse University and a private firm called DoorDingz are considering options to deal with the parking issue around campus. SU is considering expanding the University Avenue Parking garage by putting three more levels on the existing garage. DoorDingz is considering building a private parking garage across the street from the existing SU University Avenue Parking garage.The following table sets out the profit per day to each if the following decisions are made:

	Syracuse University
DoorDingz		Expand	Don't Expand
Build Garage	8,100 7,100	10,500 6,600
Don't Build Garage	7,200 10,100	9,200 8,400

1. Describe the full set of best response strategies for each player.

1. What is the Nash Equilibrium outcome of this game?
   1. Illustrate on a graph the difference between a monopoly outcome and a perfectly competitive market outcome. Identify areas corresponding to producer surplus, consumer surplus, and deadweight loss.

c) Is there a Pareto Improving outcome compared to the Nash outcome? Explain why or why not.

8) Monopoly.

1. What is a natural monopoly?

1. The faculty of the PAIA department have brought in three candidates for a public management position, Katlin, Maureen, and Eric. Katlin is the most international in her research agenda and appeals to the international relations / Security oriented faculty, and their second choice is Eric. Maureen is a management scholar, and appeals to the management faculty, who have as a second choice Katlin. Eric is the most quantitative and appeals to the econ and stats faculty who have as a second choice Maureen.

Preferences over Candidates
	First Choice	Second Choice	Third Choice	Percent of the vote
IR / Security Management Econ and Stats	Katlin Maureen Eric	Eric Katlin Maureen	Maureen Eric Katlin	25% 40% 35%

For each agenda, describe the voting in each round and the final outcome.

1. Maureen versus Eric, then winner takes on Katlin

1. Katlin versus Maureen, winner takes on Eric

1. Eric versus Katlin, winner takes on Maureen

1. If John is the chair and he prefers the economics and stats preferred outcome how should he set the agenda?

1. Briefly describe first how each of the following can justify government policy response, and then identify a potential policy response that addresses the problem.
   1. Information asymmetry in the housing market.

1. The positive externality conferred on neighboring properties when an individual homeowner improves a property

1. The negative externality imposed on society by a private firm emitting particulate matter as a by-product of production.

1. Moral hazard and fire insurance.

1. Informed demand being below and to the left of uninformed demand.

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