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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.

Appendix Table 3a. United Arab Emirates: Consolidated General Government Finances, 2014-22 Est Proj Proj Proj. Proj. Proj. Proj 2014 2015 2016 2017 2018 2019 2020 2021 2022 (Billions of UAE dirhams, unless otherwise specified) Total revenue 518.8 381.4 362.3 379.7 405.9 426.2 444.6 459.4 474.4 Taxes 279.9 164.5 113.4 130.1 146.7 152.2 159.7 168.6 176.6 Social Contributions 5.3 4.3 4.4 4.5 4.6 4.7 4.8 4.9 5.0 Grants 0.0 0.0 0.0 0.0 0.0 0.0 00 0.0 0.0 Other Revenue 1/ 233.6 212.6 244.6 245.1 254.6 269.3 280.1 285.9 292.8 Expenditures (a+b) 490.5 425.6 417.3 423.4 434.7 441.8 445.7 448.4 450.1 Expense (a) 450.6 390.5 372.3 378.3 385.4 391.9 398.3 404.8 411.1 Compensation of employees 47.5 63.0 64.9 67.4 70.2 72.8 75.4 78.1 80.8 Use of goods and services 49.5 59.8 58.8 59.1 59.6 60.1 60.7 60.9 61.0 Consumption of fixed capital 3.8 4.6 5.8 7.4 7.8 8.3 8.8 9.3 9.8 Interest 4.1 2.8 2.0 2.0 2.1 2.1 2.2 2.2 2.3 Subsidies 29.6 22.2 16.4 16.8 17.3 17.8 18.2 18.7 19.1 Grants 21.9 8.8 14.9 15.2 15.5 15.9 16.3 16.7 17.0 Social Benefits 43.9 42.6 42.2 43.4 44.8 45.9 46.7 47.6 48.5 Other expenses 2/ 250.2 186.7 167.2 167.0 168.1 169.0 170.0 171.3 172.7 Net acquisition of nonfinancial assets (b) 39.9 35.1 45.0 45.2 49.2 49.9 47.4 43.6 39.0 Net operating balance (Revenue minus expense) 68.2 -9.2 -10.0 1.4 20.4 34.3 46.3 54.6 63.3 Net lending (+)/borrowing(-) (Revenue minus expenditures) 28.3 -44.2 -55.0 43.7 -28.8 -15.6 1.1 11.1 24.3 Net acquisition of financial assets 1/ 3/ 32.4 32.9 -17.6 -14.1 -7.1 12.6 17.5 32.8 42.0 Domestic -829 -60.0 16.8 -5.0 -2.2 5.3 4.8 9.3 8.7 Foreign 115.3 92.9 -34.4 -9.0 4.8 7.3 127 23.5 33.3 Net incurrence of liabilities 4.1 68.6 37.3 29.7 21.7 28.2 18.6 21.8 17.7 Domestic 14.2 62.4 17.4 23.0 18.4 16.3 14.2 12.1 12.7 Foreign 10.1 3.1 19.9 6.6 3.3 11.9 4.5 9.6 5.0 Source: IMF Country Report No. 17/218, United Arab Emirates, 2017 Article IV Consultation - Press Release, Staff Report and Informational Annex for the United Arab Emirates