answer 4(1) - Econ 162-A1 A2 Fall 2015 Kenny Christianson due October 16 ANSWER KEY PROBLEM SET NUMBER FOUR 1 Here are the 3 choices and preferences of

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

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Econ 162-A1, A2 Kenny Christianson Fall 2015 due: October 16 ANSWER KEY – PROBLEM SET NUMBER FOUR 1. 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: liberals moderates conservatives first choice A B C second choice B C A third choice C A B Each group consists of 145 members. Voting by majority rule will provide different results 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 be preferred 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 be preferred depending on the order of the vote. Those who control the agenda may be able to control the outcome of the vote. 2. There are many inherent problems with illegalized markets, on both the demand and the supply sides of the market. On the supply side, criminals will have a comparative advantage in supplying illegal goods. Suppliers have an incentive to offer more potent versions of the product to maximize value per weight and minimize their risk of detection. Increased enforcement decreases the supply curve, which leads to increased profits for suppliers. In illegal markets suppliers need not make any guarantees about the quality of the product. Since legal contracts cannot be enforced, violence becomes the primary means of contract enforcement.

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