Download ECON 351 FISCAL ECONOMICS I

ECON 351 FISCAL ECONOMICS I
HOMEWORK FOR SECTION 02 &03
1. Assume that Friday and Crusoe have identical utility functions described by the
following table
Number of oranges
1
2
3
4
5
6
7
8
Utility
11
21
30
38
45
48
50
51
Marginal Utility
(a) Assume that there are 8 oranges to be divided between Friday and Crusoe. Take a
utilitarian view and assume that social welfare ius the sum of utu\ility of two
individuals. Using the data above, what is the social welfare corresponding to each
possible allocation of oranges? What allocation maximizes the social welfare?
Show that the allocation that maximizes the welfare has the property that the
marginal utility of an extra orange given to each individual is the same.
(b) Now take a Rawlsian view and find the social welfare associated with each
allocation of oranges. What allocation maximizes the social welfare.
(c) Now assume that Crusoe has 6 oranges and Friday has 2. Assume that for every 2
oranges taken away from Crusoe, Friday gets only 1, an orange being lost in the
process. Which of the feasible allocations maximizes social welfare with a
utilitarian social welfare function? With a Rawlsian social welfare function?
Which general conclusion can you draw from this exercise.
1.
(a)
(b)
Describe how one may use the median voter theorem to derive a market
demand curve for public goods. Discuss the problems one may face in
implementing this procedure. How would one solve these problems?
Describe how one may use to median voter theorem to explain how different
candidates set their positions along a spectrum of political views (during an
election campaign).
2. Suppose there are five people 1, 2, 3, 4, 5 who rank projects A, B, C, D as follows
1
A
D
C
B
2
A
C
B
D
3
D
B
C
A
4
C
B
D
A
5
B
C
D
A
(a) Sketch the preferences of each individual and identify the ones with a single
peaked and the ones with a multi peaked preferences. Do you expect vote cycling
in this case? Why or why not?
(b) Which candidate will be a Condorcet winner?
(c) Which candidate will be a plurality winner?
(d) Which candidate will be a Bordo count winner?
3. Logrolling allows voters (through their representatives) to express the intensity of
their preferences. However, gains may come at the expense of greater general
losses.” Discuss this statement by constructing a simple three voters, three
projects example.
4. Write an essay on the voting systems. In this essay:
(a) Describe what is meant by the "voting paradox"
(b) Discuss the importance of the voting paradox; when and under what conditions is
it likely to occur?
(a) Explain the conditions under which the results of voting reflect the preferences of
the median voter
(b) Show how "logrolling" could lead to the acceptance of socially undesirable
projects (that is excessive government spending)?