Problem Set 5 - ECON 436.pdf

# Problem Set 5 - ECON 436.pdf - Economics 436 Summer 2019...

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Economics 436 Summer 2019 Fifth Problem Set Due July 12 th I. A. What is the definition of economic efficiency? 11. B. Briefly explain why being inefficient is considered undesirable . C. Does this mean that any change that moves the economy from an efficient situation to an inefficient one is undesirable? Why or why not? A. When is a change considered desirable according to the Potential Compensation Criterion? B. Suppose there is one polluter and one victim and the polluter has the right to pollute . Would a move from the level of pollution for which MB=0 to the one for which MB=MD satisfy the potential compensation criterion? C. What difference, if any , would it make in considering the desirability of such a move if it resulted from Coasian bargaining rather than because of the imposition of a government regulation? D. Some people argue that undesirable public facilities tend to be located far too often in poor neighborhoods . Explain why this may be correct, even if the location of the facilities is chosen solely on the objective bas is of minimizing the dollar value of the damages they cause . Ill. Suppose that everyone has the same utility function for income , U = 60 , 000lnY. A. Explain why the equation for the marginal utility of income would be 60 , 000/Y . 8. What would be the marginal utility of income for someone with an income of \$30 , 000? For someone with an income of \$240 , 000?

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