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Questions

1) Government size

a.How will you measure the extent to which society's resources are subject to

control by government?

b.Graph UAE government expenditure types for 2014 to 2022 by using the table in

the Appendix. Comment.

2) Revenue and expenditure

a.Make a scatter plot of total revenue and total expenditure for 2014 to 2022 from

the table in the Appendix.

b.What is the relationship?

c.Estimate a regression equation (Y: expenditure, X: revenue).

d.What is the increase in expenditure when revenue increases by one billion

dirhams?

3) Edgeworth box

a.Make an Edgeworth box by own choice of original person names and goods

types.

b.Indicate a point in the box which is not Pareto optimal. Explain.

c.Indicate a point in the box which is Pareto optimal. Explain.

d.Can a skewed distribution of resources be Pareto optimal? Why or why not?

Indicate your answer in the Edgeworth box.

4) Suppose the factory Afro-Puffs Inc. produces wigs. As a by-product of this wig production, they also produce dangerous emissions of toxic gases (as a result of the strong glue used to hold the hair in place). The De-Lite car factory, down the road, experiences a negative externality from this production process. Suppose that the supply curve (private marginal costs) for the wig factory is X = (2/5)P - 2, and it faces a market demand of Xd = 15 - P/2. The marginal damages caused by the production of wigs can be written as X = P - 1/2.

a.Find the equilibrium price and quantity in the market for wigs. Illustrate graphically. Comment.

b.Find the socially optimal level of wigs and the corresponding price. Illustrate graphically. Comment.

c.How much should the wig factory be taxed per wig? Illustrate graphically. Comment.