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1. Imagine that you are a Wisconsin state senator. It is up to you and your colleagues to establish a system of education in the state: thus, you need to consider various policy plans and act on behalf of your constituents to establish the best system. In Wisconsin, there are three types of households: Type I households have a pre-tax income of $25,000 and they do not value education much, Type II households have a pre-tax income of $100.000 and value education very much, and Type III households have a pre-tax income of $100,000 and value education more than Type I, but substantially less than Type II. Assume that households can spend their income on education or other goods. Use this information to answer the following questions.

a. One senator recommends a system where there is only private education available to the households in your state Draw the budget constraints for the three households in Wisconsin under this plan. Also draw indifference curves that maximize utility for each type of household, where spending on education for each is the following Type 1 - $1000, Type II - $10.000. Type III - $5000. (Hint: be sure to label the amount of spending on each type of good.)

b. A cond senator then presents an alternative education option. They present a progressively taxed option where each household is taxed 3 cents dollar of their income (ie. 3%) to be used for public schools. The state then provides $1000 worth of public education spending to each household with the tax revenues Draw the new budget constraints for the three household types in Wisconsin weer this plan and three new indifference curves that maximize utility for each household in How much in education spending does each household get under this plan? Are the households better off worse off or the same under this plan (address each in turn? Explain again, be sure to label amounts of spending or type of good.

c. How much does each plan produce in total education spending in Wisconsin? If higher total education spending equates to higher educational attainment, which of these proposals do you prefer?

d. Because you took ECON 445, you know that vouchers can theoretically improve achievement. You propose using the same progressive tax system as in d. to fund vouchers worth $1000 for each type of household (with no public education option). Draw the new budget constraints for the three household types in Wisconsin under this plan and three new indifference curves that maximize utility for each household type. How much does each household type spend on education under this plan? Are the households better off. 1 worse off, or the same under this plan (address each in turn)? Explain. Again, be sure to label amounts of spending on each type of good.)

e How much in total education spending does the voucher system produce? Were you correct that this system would produce greater educational attainment than the plants of your two colleagues?