Eco 355 f16
Homework 3, due at the beginning of class Friday, October 21
Your answers to these problems should be turned in completely separate from your
revisions of Exam 1. If you send Homework 3 answers by email, send them in only one
digital file. Whe
N5 Cost Benefit Analysis
Notes related to Gruber, Public Finance and Public Policy Chapter 8
Cost benefit analysis is a framework for estimating net benefits from expenditure on
projects such as job training, environmental cleanup, highways, bridges, stad
Homework3(40points)
(Due on 03/30/2017)
1. (10 points) Suppose that you have a job paying $70,000 per
year. Next year your wage will either fall or stay the same. With a
5% probability, next year your wage will be reduced to $40,000 for
the year.
(a) What
Homework 1 (40 points) (due on Thursday, Feb 9th)
1. Suppose that Ben has $100 to spend on two goods, movie(M) and
hamburger(H). The price of a movie is $10 and the price of a hamburger is
$2. Bens preferences are
represented by the utility function: U(,
Homework 2 (40 points)
( Due on Thursday, Feb 23)
1. For each of the examples below, please answer the following:
(1) Does an externality exist? If so, classify the externality as positive/negative (or
both).
(2) If an externality exists, determine whethe
Solutions to Homework 1 (40 points)
Q1
(a)
The constrained optimization problem can be written as:
Max U(M, H) MH 2
subject to 10M +2H = 90
Two conditions for optimal choice:
(1)
MU M PM
MU H PH
MU M
So:
U
H2
M
MU H
U
2MH
H
MU M
P
H2
10
M
MU H 2MH P
N4 Notes on Externalities and Public Goods, related to chs. 5 and 6 of Gruber text
Externalities
An agent is a person or a rm, gov, or nongovernmental organization (NGO) that
acts as if it were a single decision maker. In the models we work with, the agen
14. Taxes on Labor Supply
Siyang Li
Basic Theory
Assess how income taxes affect labor supply:
Ava trades off consumption (which requires work) against
leisure.
Each hour of leisure costs Ava her wage, $12.50, in foregone
consumption, so the slope of her