Question

Public Goods EBE2053/EXERCISE 5

1. A pure public good is:

a. one that can easily be sold by the unit.

b. one that is nonrival in consumption.

c. one whose benefits are not subject to exclusion.

d. both (b) and (c)

2. The marginal cost of providing a certain quantity of a pure public good to an additional consumer after it is provided to any one consumer is:

a. zero.

b. positive and increasing.

c. positive and decreasing.

d. positive and constant.

3. The nonrival property of pure public goods implies that the:

a. benefits enjoyed by existing consumers decline as more consumers enjoy a given quantity of the good.

b. benefits enjoyed by existing consumers are unaffected as more consumers enjoy a given quan-tity of the good.

c. good cannot be priced.

d. marginal cost of producing the good is zero.

4. The efficient output of a pure public good is achieved at the point at which:

a. the marginal benefit obtained by each consumer equals the marginal social cost of producing the good.

b. the sum of the marginal benefits of all consumers equals the marginal social cost of producing the good.

c. the marginal benefit of each consumer equals zero.

d. the marginal social cost of producing the good is zero.

e. both (c) and (d)

5. In a Lindahl equilibrium,

a. each consumer purchases a pure public good up to the point at which his or her marginal benefit equals the marginal social cost of the good.

b. each person pays a tax per unit of the pure public good equal to his or her marginal benefit.

c. the sum of the marginal benefits of all consumers equals the marginal social cost of the good.

d. both (a) and (c) e. both (b) and (c)

6. The free-rider problem:

a. becomes more serious as the number of persons involved in voluntarily financing a pure public good decreases.

b. becomes more serious as the number of persons involved in voluntarily financing a pure public good increases.

c. is independent of the number of persons involved in a scheme to voluntarily finance a pure public good.

d. does not prevent voluntary cooperation from efficiently providing pure public goods.

7. The marginal cost of making a given quantity of a congestible public good available to more consumers is

a. always zero.

b. positive and increasing.

c. positive and decreasing.

d. zero at first but eventually becomes positive and increasing.

8. Cable TV programming is an example of a:

a. congestible public good.

b. price-excludable public good.

c. pure public good.

d. pure private good.

9. Which of the following is a good example of a congestible public good?

a. TV programming

b. a road

c. a loaf of bread d

. homeland security

10. Education is:

a. a pure public good.

b. a pure private good.

c. a good that has characteristics of both public goods and private goods.

d. not subject to the exclusion principle.

Essay questions

1.Why the government intervene in the supply of education although it is clearly feasible to price educational services?

2.Suppose currently you earn taxable income of RM100,000 per year. You are subject to Marginal Tax Rate (MTR) of 50 percent. Currently, your Average Tax Rate (ATR) is 35 percent.

1. Calculate your annual tax;
2. Calculate the extra tax that you pay annually if your annual income increase to RM110,000 per year;
3. What is your ATR when annual income is RM110,000?

3. The payrol tax for unemployment insurance in country Viva taxes all wages up to a maximum of $30,000 per worker at a 5 percent flat tax rate. What are the Marginal Tax Rate (MTR) and Average Tax Rate (ATR) on the wages for

1. A store supervisor with annual wages of $18,000;
2. A University lecturer with wages of $35,000 per year;
3. A corpoorate CEO with an annual salary of $500,000

4. How does the ability to pay priciple of taxation differ from the benefit principle? What problems are encountered in implementing both these tax philosophies?

Exercise 7: Government Budget:

1. Why do some economists argue that budget deficits contribute to increased market rates of interest and reduce private investments?
2. What is Recardian Equivalence? Why does it imply that budget deficits cannot influence interest rates?
3. What is the significance of the distinction of between internal debt and external debt?
4. In what sense does the use of debt financing by a national government impose a burden on the future generation? How does debt financing increase the wealth of of the current generation compared to tax financing? Under what circumstances will the burden of the debt on future generations be offset?

LU 8-9 PUBLIC GOODS

1. What are the characteristics of public goods?
2. How do pure public goods differ than pure private goods?
3. Why is the marginal cost of allowing another consumer to enjoy the benefits of a pure public good always zero even though the marginal cost of producing the good is positive?
4. How do congestible public goods differ than the pure public goods?
5. How does the demand for a pure public good differ than that of a pure private good? The can the demand for a pure public good be derived?
6. Under what condition is the output level of a pure public good efficient?
7. What are the characteristics of the Lindahl equilibrium for cooperative supply of a pure public good?

LU 12 MARKET FOR HEALTHCARE

1.How does the system of third party payments through health insurance affect the market for health care?

2. What is moral hazard of health insurance?

3. How would the market for health care be affected if the federal government required all health insurance companies to increase their coinsurance rates from current levels by 50 percent?

Answer 1