Practice Problem Solutions 3

Practice Problem Solutions 3 - Practice Problem Solutions...

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Unformatted text preview: Practice Problem Solutions Ch. 12: Governance 1. a. Market failure – coordination failure. This action promotes economic growth. b. Market failure – public good. This action promotes economic growth. c. Government Failure – self‐serving policy. This action does not promote economic growth. d. Market Failure – positive externality. This action promotes economic growth. e. Government Failure – self‐serving policy. This action does not promote economic growth. f. Pursuit of the goals of society. This action does not promote economic growth. g. Government Failure. This action does not promote economic growth. h. Market Failure – positive externality. This action promotes economic growth. 3. This would represent an exogenous change in income in the two coffee producing countries. One could then track changes in governance to evaluate how income per capita affects the quality of governance. 4. No need to complete this problem. We did not cover this material. Chapter 13: Income Inequality 1. a. b. Gini Coeffcient = A / (A+B) c. 1 1 B = (25)(50) + (100 − 25)(100 − 50) + (25)(100 − 50) 2 2 = 625+1,875+1,250 =3,750 1 (100)(100) = 5, 000 2 5, 000 − 3, 750 = 0.25 Gini Coefficient = 5, 000 A+B = Chapter 15: Geography, Climate and Natural Resources 1. The Malthusian model predicts that if one region has higher agricultural productivity due to geography, that region will be able to support a higher population, and the standard of living across regions will be the same. This does not match what we observe in the data. 3. & 4. Were not covered in class, so there is no need to answer these questions. 3. Normally inequity results in less human capital accumulation because when you take some income away from a poor person so that it decreases their schooling, giving it to a rich person will not increase their schooling by the same amount. This happens because the marginal product of human capital is decreasing and the marginal product of physical capital is constant. However, when student loans are available, poor people are not as constrained by income when they make investments in human capital. The result is that the socially optimal human capital accumulation can occur at a greater level of income inequality than in the absence of student loans. 4. When people perceive that economic mobility is high they will feel less entitled to wealth transfers from the rich. The reason for this is that economic mobility allows for talented hard working individuals to improve their economic outlook, increasing a sense of fairness. ...
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This note was uploaded on 12/05/2010 for the course ECON 114 taught by Professor Cindybenelli during the Summer '08 term at UCSB.

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