1. TRUE or FALSE and EXPLAIN (12 points, 3 points for each):

1. When there are many migrants moving to a city, the housing price and rental price go up, which hurt some local residents. Therefore, migrants create negative externality on these local residents. Government should intervene to improve market efficiency.

B) Social insurance should be generous for those unpredictable and costly adverse shocks, but sometimes we want to put ceilings for reimbursement when the social cost is way too higher than individual benefit.

C) The Coase Theorem implies that when there are well-defined property rights and costless bargaining, negotiations between the parties will guarantee efficiency no matter who gets the property rights. Therefore, the only role of the government is to assign property rights clearly, and who gets the property right does not matter.

D) A reduction in the tax rate on interest income will increase overall savings.