Review Questions and environment guest week

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Review Questions and environment guest week

• Introductory Economics for the Treasury
• Dr. Paul Frijters

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• 1. What is the Gini coefficient in a country
  where everyone has exactly the same income, and
  what is the percentage of individuals below the
  Henderson poverty line in such a situation?
• 0 and 0
• 2a. Give one argument why you might prefer a
  subjective poverty line over a relative one.
• Let individuals decide explicitly more cost
  factors considered
• 2b. Give an argument why you would prefer the
  basic commodity basket method for computing
  poverty above the subjective poverty line method.
• Its easier to interpret and compare across
  countries
• 3. Give 2 examples of a public good and 2 of a
  private good.
• Private cars, pens. Public dikes, armies.

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• 5. Give an example of a situation in which the
  social rate of return on an investment is higher
  than the private rate of return.
• Education having positive externalities on social
  cohesion.
• 6. Give an example of a means-tested benefit and
  a non-means tested benefit. Which one is
  associated with poverty traps?
• The means tested one
• 7. Why does the second-hand computer market
  suffer from a lemons-market problem?
• Asymmetric information means buyers expect the
  bad second hand computers to be on sale, which
  indeed is the case, lowering the price, making
  the supplied computers even worse.
• 8. Why does a combination of local monopolist
  versus local monopsonist generically mean a more
  efficient outcome than having only a monopolist
  or monopsonist.
• More information on both sides of the market and
  all those concerned are involved in the outcome
  the bargained solution will avoid a deadweight
  loss that otherwise always occurs.

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Environment questions

• Why isnt there a market for tradeable music
  household noise pollution rights in Sydney? What
  do you think is the cheapest and most effective
  way to keep music noise pollution to a minimum in
  Sydney?
• Transaction costs. Use of law probably cheapest.
• In many rural catchment areas, all the farms
  benefit from existing surrounding woodlands
  (which reduces salinity in the whole area), but
  each farmer has an incentive to let cattle
  illegally graze those same communal woodlands,
  leading to reduced woodland acreage. What type of
  goods are these woodlands seen in this context?
  what type of market failures are involved? name
  3 possible solutions to this problem and talk
  through the merits and weaknesses of each of
  those solutions.
• A common good (non excludable but rival benefits
  in terms of grazing), and a public good (in terms
  of salinity reduction service to all that is
  neither rival or excludable).
• Solutions club goods appeal to morality
  monitoring sale of rights to woodland use
  salinity pollution rights.

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Practical taxes and welfare triangles

• Envisage the market for petrol in Australia.
  Suppose the government introduces an additional
  petrol tax of 10 of the market price (like GST)
  to be paid by the petrol stations.
• 1. Show graphically how the market equilibrium
  changes and show the change in producer and
  consumer surplus.
• See tax lecture slides
• 2. Now, suppose that the same tax is not paid by
  the petrol stations, but that consumers are asked
  to pay the tax (i.e. they have to declare the
  amount of petrol they have purchased on their tax
  forms and pay tax afterwards). Show again how the
  market equilibrium changes and the changes in
  surplus.
• See tax lecture slides
• 3. Is there any difference in the surpluses
  according to who directly pays the tax? No.

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Impact of a 1050 Tax on Buyers
Price of Petrol
Supply, S1
3.00
D1
Quantity of Petrol
0
100