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Unformatted text preview: ) Once Congress
passes the budget, the details of spending
outlined in the budget become law for that
fiscal year. Then, the whole process begins
again in only a few months. 14 (364-389) EMC Chap 14 11/18/05 10:59 AM ??? Splitting the
Lobster or a
Hamburger? S uppose you and five friends
go out to dinner. In setting A,
you and your friends agree to pay
for your own meals. If you have lobster for dinner, you pay for lobster. If
you have a hamburger for dinner,
you pay for the hamburger. The
same holds for your friends.
In setting B, you and your
friends agree to split the bill
evenly. If the total bill
comes to $150, then
you will split this bill
six ways ($25
Now in which of
the two settings, A or
B, do you think (1)
you will order more
expensive food and (2) the
total bill will be higher?
In other words, do you think you
will order a more expensive meal
when you have to pay for what you
order, or when you pay one-sixth of
what everyone orders?
Do you think the total bill will be
greater when everyone pays for
what he or she ordered, or when
everyone pays an equal share?
One might think that a person
would buy exactly the same meal in
both settings, and so the total bill in Page 381 both settings will be the same.
However, some evidence indicates
that people seem to buy more
expensive things (food, clothes,
etc.) when they view themselves as
paying a fraction of the cost.
Think of it this way. If you are
considering the lobster, and you
know that you will have to pay for it,
you consider the full price of the
lobster—say, $35. If, however, you
agree to split the bill, then the price
(to you) of purchasing lobster is
not $35, but one-sixth of
$35, which is $5.83. Few
people will choose the lobster at a price of $35, but
many will at $5.83.
What holds for you
holds for everyone at the
dinner table. Because splitting the bill causes the
items on the menu
to appear cheaper
(for each individual), each individual is more likely
to buy expensive
meals. But if everyone buys meals they
wouldn’t likely buy if they
had to pay the full price, the dinner
total is likely to be high indeed.
The dinner under two different
settings goes a long way to explaining why government spending can
zoom upward quickly. As you saw in
Exhibit 14-7 on page 377, projected
federal government spending in
2006 is $2,511 billion. But the people who lobby government for benefits aren’t paying for all the benefits
that they may receive. For example,
let’s say that the farmers ask Congress for subsidies. If Congress
and the president agree to the subsidies, the taxpayers will have to
foot the bill. Now the farmers are
taxpayers, so they will have to pay
for some of the benefits they
receive. But they only pay for a fraction of the benefits they
receive in a country
than 100 million taxpayers. For the farmers this is like going to dinner with
100 million people at the table, all
having agreed to split the check.
Now if 100 million people are
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This document was uploaded on 01/16/2014.
- Winter '14