e2 335 f05 - PRELIM 2- ECON 335 - Cornell University - J....

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PRELIM 2- ECON 335 - Cornell University - J. Wissink - Fall, 2005 – Nov 7 Directions: Write legibly, concisely, & coherently. Label all axes, functions, & variables you use. READ QUESTIONS CAREFULLY. Draw pictures whenever possible. MAKE SURE YOU DO ALL PARTS OF EACH QUESTION. Total time for the test is 50 minutes. Total points on exam = 100. 1. (15 pts) Consider the Arrow Impossibility Theorem. a. Simply list/state the five axioms Arrow required a social welfare function exhibit using either the Blair/Pollak terms or the more sophisticated “social choice theorist’s” terms. b. Briefly define and explain the rational for including any one of these 5 axioms. c. If we weaken the requirement of collective rationally to only insisting on P-transitivity, what kinds of Arrow Social Welfare functions satisfy the remaining 4 axioms? 2. (12 pts) Consider retirement/pension programs: a. Identify three factors commonly cited as reasons why private market solutions have a tendency to fail to be efficient in the market for old-age (retirement) insurance. b. Based on your answers in part (a), what advantage does the government have over the private market in structuring and running a retirement/pension program? c. What is the economic basis for the often quoted claim that the social security program is unfair to lower income people since the ratio of social security contributions paid by a worker divided by total worker earned income is higher for lower income people than very high income people? If low and high income people face the same FICA taxes, shouldn’t such a claim be false?
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e2 335 f05 - PRELIM 2- ECON 335 - Cornell University - J....

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