Principles of Microeconomics in public policy administration

MT

1. Management Decision Analysis

Suppose you work in Washington, D.C. and you desire to hold an important one-hour meeting with executives in New York. You have two options:

(A) You can fly to New York. You own 25,000 frequent flyer miles which you can return to the airline at any time for a free ticket anywhere in the United States. Thus, you need not pay for your flight to New York. Your only expenditures would be for 15-minute cab rides to and from the airport in D.C. (fare = $25 each way) plus 15-minute cab rides to and from the airport in New York (fares = $25 each way).

(B) You can use a video conferencing facility. At the beginning of the year, you paid $2,500 to obtain access to a video conferencing facility located within your office building for one year. You also must pay $125/hour for each hour the facility is used.

You estimate the meeting will be equally effective if held in person or via video conferencing. (Meeting face to face has advantages, but video conferencing may impress the other executives.)

(1) What are the costs associated with each option? (2) Which option will you choose? Explain your reasoning.

2. In four sentences or less, explain the principle of comparative advantage and the importance of this principle to international trade policy

3. In five sentences or less, using economic terms and an example, explain the primary economic reason why certain (but not other) animal species are endangered.

4. Should governments pass laws to reduce air and water pollution? Why or why not? Should governments pass laws to eliminate air and water pollution? Why or why not? Using economic terminology and reasoning, explain how a regulatory agency should decide how much pollution reduction to require in any specific environmental regulation. (Your total answer should not exceed six sentences.)

5. Suppose Congress is considering the imposition of a 20% tax that sellers would pay on the sale of expensive luxury cars. Would this tax be an effective strategy to raise revenue without burdening low-income individuals? Use supply and demand analysis and explain using economic terminology and reasoning in no more than six sentences.