3. Suppose that the bureaucrats who run the Defense Department are budget maximizers. Indealing with Congress, the bureaucrats announce a price p per unit of national defense and Congressgets to choose the level of defense (denoted z). Assume that the Dz curve, which representsCongress' demand for z, is given by Dz = 16 – z.Suppose the true cost per unit of national defense is 3 (i.e., c = 3). Find the socially-optimal level of defense.bureaucrats, and the resulting level of z chosen by Congress. Is national defenseunderprovided, overprovided, or optimally provided? Is part of the budget wasted bythe bureaucrats? If so, how much is wasted?a)Then, find the value of p that is announced by theb)Suppose instead that c = 12. Repeat part (a) for this case.

Congress demand for level of defense D = 16 – z P = 16 – z Cost per unit of defense = 3

Answered: 3. Suppose that the bureaucrats who run…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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a) State the condition for the Pareto optimal provision of a public good. Interpret the condition. B b) Consider agent A with (inverse) demand curve for the public good P₁ = 60 - 2Q and agent B with inverse demand PR = 90 - 5QB, where prices are measured in £ per unit. The marginal cost of producing the public good is £10 per unit. What is the Pareto efficient level of the public good? Explain. Illustrate in a graph. [Hint: Compute the marginal social benefit of the public good by adding up the demand curves vertically, over the p's] c) Describe the Vickrey-Clarke-Groves (VCG) Mechanism, provide examples and discuss problems with the VCG mechanism.
Two individuals A and B have utility functions defined over two goods, a private good 'x') and a public good, 'F. The utility function of an agent 'i' is defined by ui = 2 log xi + log F where F =FA + FB. Each agent has 200 units of private goods x, as his endowment and 1 unit of private good can be transformed into 1 public good F. Answer the following (a) Find the Nash equilibrium values of FA and FB? (b) What is the Pareto optimal level of F? (c) In what condition the Pareto optimal level of F will not depend on the number of private goods? (d) What would be the consumption of x by each agent if they contribute equally towards the public good (F)? (e) Would it change if an agent had a larger endowment of x to begin with?
Question 1 The mayor of a village is considering to build a public park. There are 5 people living in the village and the benefits from the public park are given as follows: v1=$0, v2=$100, v3=$200, v4=$300, v5=$400. The cost of the park is $800. Consider the demand revealing (Vickrey-Clarke-Groves) mechanisms. Which of the following statement is false? A. In the Groves mechanism, Individual 1 receives $200 B. Optimal level of public good is provided C. Individuals report their true benefits to the municipality D. In the Clarke pivotal mechanism, Individual 1 neither receives nor pays any money E. None of the above
Consider an economy with a private good and public good. The economy consists of two consumers whose utility functions are: u1(x1,y)=1/2 ln x1 + 1/2 ln y and u2(x2,y)=1/3 ln x2 + 2/3 ln y (better written equations attached) The endowment of consumer 1 is w1=2, and the endowment of consumer 2 is w2=3, both in units of private goods. The production of public good uses the linear Technology y=z. Find Lindahl equilibrium.
A Consider agent A with (inverse) demand curve for the public good P₁ = 60 - 2QA and agent B with inverse demand PB = 90 - 5QB, where prices are measured in £ per unit. The marginal cost of producing the public good is £10 per unit. What is the Pareto efficient level of the public good? Explain. Illustrate in a graph. [Hint: Compute the marginal social benefit of the public good by adding up the demand curves vertically, over the p's]
Consider an economy with a private good and public good. The economy consists of two consumers whose utility functions are u1(x1,y) = 12 Inx1+ 12 Iny and u2(x2,y) = 31 Inx2 + 23 Iny. The endowment of consumer 1 is w1 = 2, and endowment of consumer 2 is w2 = 3, both in units of private goods. The production of public good uses the linear technology y = z. (a) Find the voluntary contributions equilibrium. (b) Find Lindahl equilibrium.
microeconomics
There are three individuals in a community: 1,2 and 3. Their valuations of the public good, G, are MB1=40-2G , MB2=20-G and MB3=10-G/2 . Let MCG=ACG= 12 a )Suppose the individuals must vote to determine the level of G, assuming that person 3 pays all of the cost. What will G be, according to the median voter theorem? Show your work b). Quantify the magnitude of the inefficiency caused by voting in part (a) That is, calculate the net loss of total social surplus that occurs because of the G you found in (a)
You are given the following information for two hypothetical schools: Triton College can teach 15 Oceanography (OCN) courses OR 5 Political Science (POLI) courses, while Capitol University can teach 28 OCN courses OR 7 POLI courses. Assume that the faculty at each school is homogeneous. a. Which is more efficient at teaching OCN? b. Which is more efficient at teaching POLI? c. Suppose that Capitol University merges with Triton College to form Capitron Academy. Draw the PPF for Capitron Academy. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
Consider a situation where Ron (R) and Nancy (N) have demands for a private good that can be represented by the following functions: D_R: Q_R = 18 - 3P_R D_N: Q_N = 11 - 2P_N If Ron and Nancy are the only two consumers of this private good and the supply function for the good is: S: Q = -1 + P What is the aggregate quantity of the good they buy?

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