Ottawa ECO 3153 – b Public Sector Microeconomic Analysis

b Public Sector Microeconomic AnalysisECO 2110A – Fall 2016C. Théoret Blue Assignment Instructions1.2.3.4.5.6.7. Completing an assignment is optional.Please complete the assignment that was randomly allocated toyou.Submitting an assignment of a different colour will result in a 0(zero) score.The course code for the BLUE assignment is ECO2110AB.BLUE answer sheets will be distributed and collected at thebeginning of the Thursday December 1st lecture.Late answer sheets will not be accepted.Please note that the last answer to each question is implicitly“None of these answers” unless the answers provided coverall possibilities (e.g., answers a) True; b) False)).For example, if the answers a), b), c) and d) following a questionseem incorrect to you, you should add the answer “e) None ofthese answers”. Of course, the alphabetic character of theanswer that you add will depend on the alphabetic character ofthe last answer provided (i.e., it could be c), d) or e)). Questions 1 to 6••• Carla and Ernie have a total income (Y) of $1,000.Carla’s utility function is UC = 5Y0.4Ernie’s utility function is UE = 2Y0.6. 1. If Carla’s oncome is 70% of total income, her total utility (1st decimal; no rounding) isa. 15.2b. 17.1c. 40.4d. 68.7 2. If Carla’s oncome is 70% of total income, Ernie’s utility (1st decimal; no rounding) isa. 55.2b. 57.1c. 61.2d. 76.9 3. If the social welfare function is additive (UC + UE), what should Carla’s income be to maximizesocial welfare?a. 180b. 200c. 400d. 600 4. If the social welfare function is UC + UE, what should Ernie’s income be to maximize socialwelfare?a. 220b. 320c. 680d. 800 5. If the social welfare function is UC + 2UE, what should Carla’s income be to maximize socialwelfare? [Comment: This reflects the fact that society values a “util” to Ernie twice as much asa “util” to Carla.]a. 40b. 50c. 60d. 70 6. What should Ernie’s income be for Carla and him to have equal utilities?a. $0b. about $345c. about $655d. $1000 Blue Assignment Page 2 Questions 7 to 11Alpha, Beta and Gamma are the only citizens of a small town.The three citizens must decide on the number of garbage cans for the town.Each citizen’s marginal benefits (MB) from garbage cans (x) is:• Alpha: MB = 1000-4x.• Beta: MB = 2000-8x.• Gamma: MB = 3000-12x.7. If the marginal cost of garbage cans is $1200 (very good quality garbage cans), the optimalsocial number of garbage cans isa. 100b. 200c. 300d. 350 8. Alpha’s marginal benefit at the optimal number of garbage cans isa. $100b. 200c. 300d. 1000 9. Gamma’s marginal benefit at the optimal number of garbage cans isa. $0b. 400c. 600d. 800 10. If each resident was asked to pay one-third of the cost of the garbage cans, Beta woulda. agree with the project and pay her/his share of the cost.b. disagree with the project and pay nothing.c. be unsure whether he/she would pay his/her share or not.d. be indifferent between having the garbage cans or not. 11. If Alpha was asked to pay 50% of the cost of garbage cans, she/he woulda. agree with the project and pay her/his share of the cost.b. disagree with the project and pay nothing.c. be unsure whether he/she would pay his/her share or not.d. be indifferent between having the garbage cans or not. Blue Assignment Page 3 Questions 12 to 16Firm A has a marginal pollution abatement cost of $15x while Firm B’s marginal abatementcost is $10X.Please note that the cost to Firm A of reducing pollution by 1 tonne is $150, reducing asecond tonne will cost 15(2) = $30 … The same principle holds for Firm B.12. Firm A currently emits 400 tons of pollution and firm B emits 200 tonnes of pollution. Ifgovernment regulators require that each firm reduce its emissions by 50 tons, Firm A’s totalcost of emissions reduction will bea. $7,500b. 12,750c. 16,000d. 19,125 13. Firm A currently emits 400 tons of pollution and firm B emits 200 tons of pollution. Ifgovernment regulators require that each firm reduce its emissions by 50 tons, Firm B’s totalcost of emissions reduction will bea. $7,500b. 12,750c. 16,000d. 19,125 14. Firm A currently emits 400 tons of pollution and firm B emits 200 tons of pollution. By what costeffective amount should firm A reduce its emissions if government regulators want to reducetotal (Firm A’s reduction + Firm B’s reduction) pollution by 100 tonnes?a. 20 tonnesb. 30c. 40d. 60 15. Firm A currently emits 400 tons of pollution and firm B emits 200 tons of pollution. By what costeffective amount should firm B reduce its emissions if government regulators want to reducetotal (Firm A’s reduction + Firm B’s reduction) pollution by 100 tonnes?a. 20 tonnesb. 30c. 40d. 60 16. Firm A currently emits 400 tons of pollution. What emissions fee per ton would be required tocause Firm A to optimally reduce its pollution emissions if the marginal social benefit frompollution reduction is 1500-15T (T=tons)?a. $10b. 20c. 40d. 60. Blue Assignment Page 4 Questions 17 to 23••• • Firms Small, Medium and Large are the only polluters of Big Horn Township in 2015.Each firm’s pollution levels in 2015 and their respective marginal cost of pollutionabatement are given below.The township has decreed that its total pollution level in 2016 must decrease from1200 tonnes in 2015 to 900 tonnes in 2016.To this end, the township distributed 300 permits to each firm in January 2016. • Firm Pollution Level in 2015(Tonnes) Marginal pollutionabatement cost($) Small 200 120 Medium 400 100 Large 600 90 Assumptions:• The market price of a permit is $105 in 2016.If two firms sell some of their permits, they must sell an equal number tothe buyer of permits. Blue Assignment Page 5 17. If each pollution permit sells for $105, Small willa. buy 0 permitsb. buy 50 permitsc. sell 10 permitsd. sell 60 permits. 18. If each pollution permit sells for $105, Medium willa. buy 10 permitsb. buy 50 permitsc. sell 25 permitsd. sell 50 permits. 19. If each pollution permit sells for $105, Big willa. reduce its year-to-year pollution by 200 tonnesb. increase its year-to-year pollution by 225 tonnesc. reduce its year-to-year pollution by 225 tonnesd. maintain its 2015 pollution level. 20. If each pollution permit sells for $105, Medium willa. reduce its year-to-year pollution by 100 tonnesb. increase its year-to-year pollution by 125 tonnesc. reduce its year-to-year pollution by 75 tonnesd. maintain its 2015 pollution level. 22. With the 900 tradable pollution permits, the total cost ($) of reducing pollution from 1200 in2015 to 900 tonnes in 2016 will bea. 10,000b. 12,000c. 13,875d. 27,750. 23. With a command-and-control pollution reduction policy (where each firm cuts back its pollutionby 100 tonnes in 2016), the total cost ($) of reducing pollution from 1200 in 2015 to 9000tonnes in 2016 will bea. 21,000b. 26,000c. 31,000d. 36,000. Blue Assignment Page 6 Questions 24 to 27 24. Consumer surplus with the subsidy is given by the sum of areasa. A+B+C+G+Hb. A+B+C+G+H+K+Mc. A+B+Cd. A+B+H 25. Producer surplus with the subsidy is given by the sum of areasa. B+C+Db. C+D+G+Hc. B+C+D+G+H+Pd. B+C+D+H+P 26. What is the cost to government of the subsidy to producers? The sum of areasa. B+C+G+Hb. B+C+G+H+Kc. B+C+G+H+K+Md. B+C+G+H+K+M+Q 27. What is the welfare gain or loss to society with the subsidy (consumers, producers andGovernment (i.e., tax payers)a. loss = Qb. gain = Qc. Neither loss nor gain. Blue Assignment Page 7 Questions 28 to 33•• Citizens John, Lois and Betty must select between a new community centre and new watertreatment plant.The net benefits of the projects to each voter are given in the following table. ProjectCommunity CentreWater Treatment Plant John-3-4 Lois+9-6 28. Which project(s) would be selected by a majority rule?a. The community centre.b. The water treatment plant..c. Both projects.d. Neither project. 29. Would the outcome with the majority rule be efficient?a. Yes.b. No.c. Maybe.d. Need more information. 30. Which project(s) would be selected if logrolling were allowed?a. The community centre.b. The water treatment plant..c. Both projects.d. Neither project. 31. Would the outcome with logrolling be efficient?a. Yes.b. No.c. Maybe.d. Need more information. 32. Suppose that buying votes were legal. Who would Lois buy a vote from?a. Johnb. Betty 33. Suppose that buying votes were legal. Who would Betty buy a vote from?a. Johnb. Lois Betty-4+12 o-o-o Blue Assignment Page 8