Homework Set #6 – ECN 212 – Spring 2016

Homework Set #6 – ECN 212 – Spring 2016 – Dr. Roberts

Homework Set #6 must be submitted online no later thanWednesday, April 6 at 8:59 p.m. (Hard copy for your convenience.)

1. The Lorenz curve shows __________ within a society.

a. the per capita annual income of individuals

b. the quality of life of the poor

c. the absolute level of income

d. how equitable the distribution of income is

e. the income distribution

2. Using the diagram above, which of the following is true?

a.	In country S the poorest 30 percent of the population receive 13 percent of the available income in country S.
b.	In country T the richest 10 percent of the population receive 23 percent of the available income in country T.
c.	In country S the richest 10 percent of the population receive 55 percent of the available income in country S.
d.	Country T has a less equal distribution of income than does country S.
e.	None of the above is true.

3. The most unequal distribution of income is found in

a. formerly communist countries.

b. less developed countries.

c. OPEC countries.

d. Pacific Rim countries.

e. the United States.

4. Suppose, as a policymaker, that you could order a single change to reduce the incidence of poverty. Which of the following changes is most likely to be effective?

a. Engineering a sustained period of economic growth

b. Increase the minimum wage

c. Increase taxes on the rich and redistribute it to the poor.

d. Streamlining governmental regulations to ease the burden on business

e. Winning the war on crime and illegal drug use

5. One proposal for solving the social security problem is privatization. The countries that have privatized their social security systems have found

a. that people find they do not have enough savings to retire.

b. that the returns people have received are more than what they would have received from the government.

c. that people are foolish with their investments.

d. that the returns people have received are less than what they would have received from the government.

e. that people use so many resources trying to make the correct investment that they lose their jobs.

6. If in the negative income tax proposal the guaranteed income floor is $9,000 and the tax rate is 25%, what is the value of the breakeven income?

a. $45,000.

b. $6,750.

c. $2,250.

d. $36,000

e. $9,000.

7. In the figure above, which of the following is true?

a) Distribution OYB is preferred to OZB,

b) Line OYB represents a less equal distribution of income than line OZB.

c) Line OXB represents the most equitable distribution of income.

d) Line OXB is the line of perfect income equality.

e) All of the above are true.

The following table identifies the utility received by each of three voters from the construction of three different government sponsored projects. . Decisions on which projects will be built are based on majority rule votes.

PROJECT	UTILITY RECEIVED BY
Larry	Curly	Moe
Freeway Interchange	$400	-$220	-$210
Smoke Detector Installation	-$80	$300	-$240
New Fire Station	-$540	-$320	$450

8. Which of the projects has a net positive social benefit to the community?

a. The freeway interchange

b. The Smoke Detector installation

c. The fire station

d. All three have a net positive social benefit

e. None of the three have a net positive social benefit

The following table identifies the utility received by each of three voters from the construction of three different government sponsored projects. Decisions on which projects will be built are based on majority rule votes.

PROJECT	UTILITY RECEIVED BY
Larry	Curly	Moe
Freeway Interchange	$400	-$220	-$210
Smoke Detector Installation	-$80	$300	-$240
New Fire Station	-$540	-$320	$450

9. Which of the following projects could be approved by simple logrolling?

a. The freeway and the fire station.

b. The freeway and smoke detectors

c. Smoke detectors and the fire station

d. All three could be approved by simple logrolling

e. None of the three can be approved using simple logrolling techniques.

Price per foot in height	Height in feet demanded
Manny’s demand	Moe’s demand	Jack’s demand
$0	5 feet	4 feet	3 feet
$10	4 feet	3 feet	2 feet
$20	3 feet	2 feet	1 foot
$30	2 feet	1 foot	0 feet
$40	1 foot	0 feet	0 feet

10. Manny, Moe and Jack constitute the market for a retaining wall which is considered to be a public good. The price per foot in height of the retaining wall and their demand for the retaining wall is described in the table above. If the cost to supply the public good is $30 per foot, what is the efficient height of the retaining wall assuming that it is a public good?

A) Since the government will pay for the public good, 12 feet is optimal because that is what is demanded at a price of zero to Manny, Moe and Jack.

B) Zero because no one is willing and able to pay $30.

C) One foot in height.

D) Two feet in height.

E) Three feet in height.

Price per foot in height	Height in feet demanded
Manny’s demand	Moe’s demand	Jack’s demand
$0	5 feet	4 feet	3 feet
$10	4 feet	3 feet	2 feet
$20	3 feet	2 feet	1 foot
$30	2 feet	1 foot	0 feet
$40	1 foot	0 feet	0 feet

11. Manny, Moe and Jack constitute the market for a retaining wall which is considered to be a private good. The price per foot in height of the retaining wall and their demand for the retaining wall is described in the table above. If the price of the wall is $10 per foot, what is the efficient height of the retaining wall assuming that the retaining wall is a private good?

A) 9 feet

B) 3 feet

C) 5 feet

D) 12 feet

E) 6 feet

12. Public radio raises its funding by staging telethons where no programs are aired for a period of time as the station solicits contributions. The stations have trouble raising money because

a. the government assigns private property rights to goods.

b. the consumption of a good cannot be limited to the person who purchased it.

c. the broadcasts are private.

d. people do not act in their own self-interest.

e. a monopoly produces a good.

13. Which of the following statements about the provision of public goods is true?

a. Public goods are generally provided by government because there are usually large external costs associated with them.

b. Public goods are generally provided by government because there are usually large external benefits associated with them.

c. Public goods are generally provided by government because they are very expensive to construct.

d. Public goods are generally provided by government because in the absence of government, there is no incentive for private industry to provide the good.

e. Public goods are generally provided by government because they are good for the public.

14. A lighthouse provides benefits to ships by warning the ships not to come too close to the shore at that point. Because the light from the lighthouse can be seen by anyone on the seas in that area, which of the following is not true?

a. Too many lighthouses will be built.

b. There is no way to exclude anyone from the benefit.

c. The free rider problem means that no private individual has an incentive to build and operate a lighthouse.

d. The lighthouse is an example of a public good.

e. The government can take action to correct this market failure.