problem8 - “pollution-reducting-captial” on its axes(b...

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Problem Set 8 Econ 115a November 28, 2007 Don’t forget to indicate your name and your TAs name! Due Date: Monday, Dec. 3. 1. Define (a) Pigouvian Tax (b) Risk Aversion (c) Median Voter 2. In question 3 of problem set 7, if movie rentals cost $8 how many movies would the roommates rent if they voted on rentals? Explain your answer. 3. Vaccinations create a direct benefit to consumers by reducing disease, but they also reduce the spread of disease to others. Show, on a graph, how government might optimally intervene in this market. 4. Consider an anti-global warming tax that is placed on the production of CO 2 . (a) Graph the effect of the tax on a iso-quant / iso-cost diagram that has “pollution” and
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Unformatted text preview: “pollution-reducting-captial” on its axes (b) If two different firms have differently shaped iso-quant curves, would the best method of reducing pollution require each to product equal amounts of CO 2 per unit of production? Why or why not? 5. What is the present value of $100 paid out each period forever (begininng at the end of the first period) if the interest rate is 10%? 6. Suppose a lottery pays $100 with probability 1/4 and $0 with probability 3/4. (a) What is the expected income from the lottery? (b) Give a formula for the “expected utility” from the lottery. (c) Which is likely to be higher, expected income or expected utility? 1...
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This note was uploaded on 04/08/2008 for the course ECON 115 taught by Professor Stevenberry during the Fall '07 term at Yale.

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