Problem set2_2010 - Professor Emmanuel Saez GSI: Mark and...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Economics 131 GSI: Mark and Francois Problem Set 2 Due Monday March 8th in class. Question 1 Short Answer: Please be succinct (less than 3 sentences). A) True/False/Uncertain: We know from the Median Voter Theorem that policies will converge on those policies preferred by the average citizen. B) True/False/Uncertain: The wage is a good proxy for opportunity costs of labor. C) Think about the following local public good – is the tiebout model likely to hold? 1. Local free food shelter program for the homeless. 2. Local police enforcement in Berkeley. 3. Local high quality public school, without zoning. 4. Local high quality public school, with zoning. D) True/False/Uncertain: The Contingent Valuation approach is likely to provide a good estimate of the valuation of a public good for individuals. Question 2 Consider a project to start an internet café. It costs $200,000 to buy the computers, all of which are purchased in the first year. The café provides an income of $50,000 a year for five years. At the end of the 5 th year the computers are obsolete and must be thrown away. It costs $20,000 to dispose of the computers. a) Should the project be undertaken at a 0% discount rate? 10%? 20%? b) Suppose that the cost of computer disposal is uncertain and that there is a fifty-fifty chance that the cost will be $10,000 and $30,000. How does this uncertainty affect the cost-benefit calculation in part a, assuming that the entrepreneur is: (1) risk-neutral and (2) risk-averse? How should she account for the additional risk?
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 07/15/2010 for the course ECON 131 taught by Professor Karp during the Spring '07 term at University of California, Berkeley.

Page1 / 3

Problem set2_2010 - Professor Emmanuel Saez GSI: Mark and...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online