Then the whole process begins again in only a few

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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 Check: Do You Order 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 each). 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 with more 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 going to...
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This document was uploaded on 01/16/2014.

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