Numerade

Questions asked

INSTANT ANSWER

11 Imagine that the figure below represents possible strategies for two countries interested in reducing nutrient loading into a lake that is shared. What is the equilibrium outcome here? What are the consequences for pollution control policy? What can be done about it? \begin{tabular}{|l|c|c|c|} \hline A & B & Work Hard & Free Ride \\ \hline Work Hard & $ (2,2) $ & $ (0,3) $ \\ \hline Free Ride & $ (3,0) $ & $ (1,1) $ \\ \hline \end{tabular}

View Answer

INSTANT ANSWER

If M AC1 = 50 − e1 and M AC2 = 40 − 2e2, can you draw the aggre- gate M AC curve? If M D = 2E, can you solve for the optimal level of emissions, the optimal tax, and the optimal cap-and- trade policy?

View Answer

ANSWERED

Breanna Ollech

Numerade educator

Question 3 (Ramsay and Inverse Elasticity Rule) The demand for good X is given by Qx = 100 - 2Px and its supply is perfectly elastic at Px=14. The demand for Y is given by Qy = 350 - 3Py and its supply is perfectly elastic at Py = 18. a) What are the equilibrium market quantities in the two markets? What are the elasticities? b) Suppose the government wants to set taxes on the two goods to minimize overall deadweight loss. Use the inverse elasticity rule to calculate the optimal ratio of taxes for the two markets. c) Just as you can use pre-tax price and quantity, the tax rate and the elasticity of demand calculate deadweight loss (as you did in question 1 above), you can use pre-tax price and revenue to calculate approximate tax revenue. Suppose the government wants to raise $1000 in the two markets. What are the exact taxes for Y and X needed to achieve this?

View Answer

ANSWERED

Andrew Davis

Numerade educator

From Rosen, Wen, Snoddon, Public Finance in Canada 5th edition page 322. Rosen, Tedds, Tombe, Wen, Snoddon 6th edition is page 299. Under the Canadian tax system, capital that is employed in the corporate sector is taxed at a higher rate than capital in the noncorporate sector. This problem will analyze the excess burden of the differential taxation of capital. Assume there are two sectors, corporate and noncorporate. The value of marginal product of capital in the corporate sector is given by VMPc = 100 - Kc , where Kc is the amount of capital in the corporate structure; the value of marginal product of capital in the noncorporate sector is given by VMPn = 80 - 2Kn , where Kn is the amount of capital in the noncorporate sector. In total, there are 50 units of capital in society. a) In the absence of any taxes, how much capital is used in each sector? Drawing a diagram may help. b) Suppose that a unit tax of 6 is levied on capital employed in the corporate sector. After the tax, how much capital is employed in each sector? What is the excess burden of the tax?

View Answer

ANSWERED

Breanna Ollech

Numerade educator

Question 1 (Taxation and Efficiency) Suppose that the demand for good X is Q=600-15P and that the competitive market equilibrium price is P*=24 (With a horizontal market supply curve). The government considers implementing a tax rate of 15%. a) Calculate the elasticity of demand at the equilibrium market price without tax. b) Use the formula with elasticity of demand to calculate the deadweight loss from the tax (please do not use any other way). c) What is the government tax revenue?

View Answer

INSTANT ANSWER

Question 5 (Public Pensions) Consider a consumer that lives only two periods and leaves no money behind. This consumer likes consumption (composite good) in both periods. The utility function is: \[ \mathrm{U}=\mathrm{c}_{0} * \mathrm{c}_{1}, \mathrm{MU}_{0}=\mathrm{c}_{1}, \mathrm{MU}_{1}=\mathrm{c}_{0} \] In period 0 , the consumer's income is $ M_{0}=24,000 $ and in period 1 , the consumer's income is $ M_{1}=6,000 $. The interest rate at which the consumer can borrow and lend money is $ 8 \% $. a) What is the consumer's optimal consumption bundle borrowing or saving decision without a public pension? b) Now suppose that the government offers a public pension (financed by a pay-as-you-go system) that charges $ \$ 5,000 $ in payroll taxes in period 0 and promises a pension that matches the private interest rate growth in period 1 . What is the impact on the consumer's borrowing or saving decision? c) Now suppose that the government asked for a payroll tax of $ \$ 12,000 $ in period 0 and promised a pension that matches the private interest rate growth in period 1 . What is the impact on this consumer's borrowing and saving decision now?

View Answer

ANSWERED

Andrew Davis

Numerade educator

Question 4 (Healthcare) Consider a single consumer whose utility function is U = ?I, where I is the yearly income of the consumer. The consumer earns $100,000 per year and has a 5% chance of getting sick per year. In this case, she loses $40,000 because of medical costs. a) What is the expected utility of this consumer when there is no insurance? b) Now suppose that there is an insurance company that offers full insurance (against all losses) for an actuarially fair premium (zero expected profit for the insurance company). How much is this premium? c) Show that the consumer is better off buying full insurance at the fair premium rather than not buying insurance. d) In fact, this consumer would be willing to pay more than the actuarially fair premium to get full insurance. How much would this consumer be willing to pay? Figure out at which premium the consumer is exactly indifferent between buying full insurance and no insurance.

View Answer

ANSWERED

Breanna Ollech

Numerade educator

Question 3 (Healthcare): Suppose that a consumer’s demand curve for doctor visits per year is given by P=222-37Q, where Q is the number of visits per year and P is the price per visit under a private medical system. Suppose that doctor visits are sold in a competitive market in which MC=74. a) How many visits per year would the individual make if there was no insurance to cover the cost? b) Now suppose that the government pays 50% of the cost of each doctor visit. How many visits will the consumer make now? c) How much does the total cost of health care increase with the insurance? Compare the total cost of doctor visits for the consumer when there is no insurance and the total cost of doctor visits to the insurance and the consumer when there is insurance

View Answer

INSTANT ANSWER

Question 2 (Income Inequality) Suppose there is an economy with 5 individuals who earn the following incomes: M= {20, 40, 60, 80, 100}. If you are expressing the percentages as decimals (i.e., 4.25% as 0.0425), please use at least 4 decimal spaces. If you are using percentages, you may round to two (i.e., 4.25%). a) Draw the Lorenz Curve corresponding to this income distribution. b) Consider the following redistributive policy: Tax the lowest two quintiles 10%, the next two quintiles (the third and fourth quintiles) 20% and the top quintile 30%. The government will loose 20% of their revenue in redistribution costs and evenly redistribute the rest. Draw the Lorenz curve representing the new income distribution. c) Instead of the policy in part b), consider the following redistributive policy: Tax everyone 20% and provide the bottom two quintiles with $15. The government will lose 30% of the total government revenue as redistribution costs and redistribute the remaining evenly. Draw the Lorenz-curve representing the resulting income distribution. d) Using only the Lorenz curves: Which policy reduces income inequality more? e) Assume individual utilities are identical and equal to Ui=Mi (where M is income) and the social welfare function is SW=U1+...+U5. What policy would be preferred from a social welfare perspective, and would the initial income distribution be the most preferred? Why might inequality and social welfare differ in their optimal distribution?

View Answer

INSTANT ANSWER

Suppose a hypothetical firm is evaluating a proposal from its engineering department to invest in research and development to discover and implement an innovative and lower-cost pollution abatement technology, one that would reduce its marginal abatement costs. It must decide whether to stick with its current technology or invest millions of dollars to develop the new technology. a. Explain (and include a clearly labelled diagram with your explanation) how the incentive to undertake this investment differs depending on whether the firm is subject to a command-and-control emission standard or a cap-and-trade emission program. b. Explain (and include a clearly labelled diagram with your explanation) how the incentive to innovate with cap-and-trade differs from the incentive to innovate with an emissions tax.

View Answer

Ron F.