answer 4(1) - Econ 162-A1, A2 Fall 2015 Kenny Christianson...

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Econ 162-A1, A2Kenny ChristiansonFall 2015due: October 16ANSWER KEY – PROBLEM SET NUMBER FOUR1.Here are the 3 choices and preferences of the House of Representatives:Choice A: the British model of public doctors.Choice B: the Canadian model of universal health insurance.Choice C:the American model of market-based health care.The positions of each group are as shown below:liberalsmoderatesconservativesfirst choiceABCsecond choiceBCAthird choiceCABEach group consists of 145 members.Voting by majority rule will provide differentresults depending on which alternatives are presented first.For example:A v B – A wins with 290 votes.(Liberals and conservatives prefer A over B)B v C – B wins with 290 votes.(Liberals and moderates prefer B over C.)Since A is preferred to B and B is preferred to C, transitivity implies that A should bepreferred to C.But:A v C – C wins with 290 votes.(Moderates and conservatives prefer C over A.)So majority rule provides an inconsistent outcome.Any of the three alternatives may bepreferred depending on the order of the vote.Those who control the agenda may be ableto control the outcome of the vote.2.There are many inherent problems with illegalized markets, on both the demand andthe supply sides of the market.On the supply side, criminals will have a comparativeadvantage in supplying illegal goods.Suppliers have an incentive to offer more potentversions of the product to maximize value per weight and minimize their risk ofdetection.Increased enforcement decreases the supply curve, which leads to increasedprofits for suppliers.In illegal markets suppliers need not make any guarantees about thequality of the product.Since legal contracts cannot be enforced, violence becomes theprimary means of contract enforcement.

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