ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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Let's walk through the median voter theorem in a little more detail. Consider a town with three voters,
Enrique, Nandini, and Torsten. The big issue in the upcoming election is how high the sales tax rate
should be. As you'll learn in macroeconomics (and in real life), on average, a government that wants to
do more spending has to bring in more taxes, so "higher permanent taxes" is the same as "higher
government spending." Enrique wants low taxes and small government, Nandini is in the middle, and
Torsten wants the biggest town government of the three. Each one is a stubborn person, and his or her
favorite position-what economic theorists call the "ideal point-never changes in this problem. Their
preferences can be summed up like this, with the x denoting each person's favorite tax rate:
Enrique
0%
N
O
Sales tax rate
Nandini
P
Torsten
20%
Suppose there are two politicians running for office, N and O (so ignore P for now). Enrique will vote for
Choose your answer. Nandini will vote for Choose your answer and Torsten will vote for
Choose your answer. Candidate Choose your answer will win the election.
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Transcribed Image Text:Let's walk through the median voter theorem in a little more detail. Consider a town with three voters, Enrique, Nandini, and Torsten. The big issue in the upcoming election is how high the sales tax rate should be. As you'll learn in macroeconomics (and in real life), on average, a government that wants to do more spending has to bring in more taxes, so "higher permanent taxes" is the same as "higher government spending." Enrique wants low taxes and small government, Nandini is in the middle, and Torsten wants the biggest town government of the three. Each one is a stubborn person, and his or her favorite position-what economic theorists call the "ideal point-never changes in this problem. Their preferences can be summed up like this, with the x denoting each person's favorite tax rate: Enrique 0% N O Sales tax rate Nandini P Torsten 20% Suppose there are two politicians running for office, N and O (so ignore P for now). Enrique will vote for Choose your answer. Nandini will vote for Choose your answer and Torsten will vote for Choose your answer. Candidate Choose your answer will win the election.
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