PS 02.Key - ANSWERS TO PROBLEM SET 2 - Economics 335 J....

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ANSWERS TO PROBLEM SET 2 - Economics 335 J. Wissink - Cornell University 1. Answer True, False, or Uncertain. Explain. a) False. Public goods do not necessarily have to be financed and/or produced by the government. Public goods are defined, for our class, as goods for which there is no rivalry in consumption and exclusion is either prohibitively costly or impossible. There are, however, many instances where a public good is more efficiently provided by the government. This does not necessitate that the government actually produce the good, however. There may be additional circumstances that indicate that the government should also produce as well as provide these goods. Finally, not all goods provided and/or produced by the government qualify as public goods. You should think of examples of all situations. b) Not necessarily. Single peakedness is a sufficient condition for majority rule to work nicely, not a necessary one. Suppose we have the set of preferences identified as the Condorcet set but we have 20 Abes, 1 Betty and 1 Charlie. The we would not have a problem with the method of majority voting. c) False. In general there is an infinite number of Pareto efficient allocations all involving potentially different amounts of the public good. d) To the extent that the parks are already financed (either by the ability to pay principle or the benefit principle or some other scheme) and require no maintenance costs, then the marginal cost of use is zero and that should be the price (provided that the park is not congested). However, this may be the case even if the government did not own them. e) Not so. There will be many times of the day when the bridge is not congested and then charging a toll would limit use and consequently people with a positive marginal benefit that can be "serviced" with zero marginal cost will not use the bridge, thereby creating dead-weight-loss. Maybe a system of financing the bridge with toll booths operating at peak hours may help, unless people start to change their driving habits as a consequence. How many have been on the Garden State Parkway in the wee hours of the morning and found some of the "coin-tosses" unmanned? I have. 2.
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This note was uploaded on 05/06/2008 for the course ECON 3350 taught by Professor Wissink during the Spring '08 term at Cornell University (Engineering School).

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PS 02.Key - ANSWERS TO PROBLEM SET 2 - Economics 335 J....

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