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Homework 4 - Economics 1480 Homework#4 Question 1 Rosen...

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Economics 1480 Homework #4 Question 1: Rosen, chapter 6, problem 1 Question 2: Rosen, chapter 6, problem 9 Question 3: Logrolling The city of Westerville has three districts, each of which has one representative on the city council. The council is considering whether or not to fund three street projects, one in each district. Each project costs $3000 and this cost is funded through city-wide taxation (i.e. each of the three districts pays $1000). Each project provides $2500 in benefits to residents within the district; residents outside of the district receive no benefits. a) Is the provision of these projects economically efficient? b) If voted on separately, would any of these projects receive a majority of votes? c) Is there a logrolling equilibrium in which any two projects are funded? d) Is there a logrolling equilibrium in which all three projects are funded? e) Relate this example to the tragedy of the commons problem discussed earlier in the class. Question 4: Rents and Taxi Medallions Read the series in the New York Times titled “Hailing a Dream” (April 13, April 24, and May 27, 2004) and answer the following questions. To access the articles, type “Hailing a Dream” with the “full text” option in Lexis Nexis. a) Explain in words how taxi medallions relate to our discussion of economic rents. b) If the market price of a medallion is $300,000, and taxi driver annual profits equal $30,000, what is the implied interest rate (use the formula from class)? c) Explain how the bureaucratic process of obtaining a license could be considered inefficient rent-seeking?
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