pubsec-2010anstops10

pubsec-2010anstops10 - BRANDEIS U NIVERSITY Department f E...

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Economics 134 Public Sector BRANDEIS UNIVERSITY Department of Economics Answers to Problem Set l0 Mr. Coiner Spring, ?E ao t o l. Ch. 22, # l. See diagrams on the separate handwritten sheet. 2. Ch.22, # 9. (also sec diagrams on separate sheet). In each nation, there are some people (relatively low savers) for whom this will make no difference. These are people whose tangency point on the original budget constraint (the solid one) is on the steeper portion. Once the program is expanded and they face the new budget constraint, they will stay put. For Wenti, this is anyone who was saving less than $2000 a year; for Schale, than $5000 per year. Assuming roughly equal populations in the 2 countries, there will be more such peoplc in Schalc than in Wenti. Second, in each nation, there are some people (moderate who will experience an income and a substitution effect (an ourward movement and a steeper slope). In Wenti, these are people initially saving betwcen $2000 and $4000, and initially saving between $5000 and 57000. The income pulls them to save less, the substitution to save more. We can't say what they will do. In any case, there are probably about an equal number of these in the 2 nations. Finally, in each nation, there are some high savers who experience just an income effect
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This note was uploaded on 10/15/2011 for the course ECON 134 taught by Professor Coiner during the Spring '11 term at Brandeis.

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pubsec-2010anstops10 - BRANDEIS U NIVERSITY Department f E...

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