Macroeconomics Private And Public Choice 3rd Edition James D Gwartney - Solutions

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7. The public sector as a share of the total economy is smaller in the United States than in most other industrialized nations. However, Japan is a notable exception.
6. The incidence of tax is not always easy to determine. The burden of income taxes falls on individual taxpayers. Most economists believe that payroll taxes are shifted back to employees. Sales and excise taxes are usually shifted forward to consumers.
5. Payroll taxes constitute the most rapidly expanding source of tax revenues. In 1 977, payroll taxes contributed 20 percent of the total tax revenue and 30 percent of the tax revenue at the federal level. Since income beyond a designated maximum is not subject to the payroll tax, the tax is
4. Personal income taxes, payroll taxes, and corporate income taxes are the major sources of federal tax revenues. Sales taxes provide the major tax base for state government, whereas local governments still rely primarily on property taxes for their revenue.
3. Since the mid-1 960s, there has been a vast expansion in public sector expenditures for income maintenance, medical care, education, human resource development, and other social welfare items. Public sector social welfare expenditures jumped from 1 1 percent of GNP in 1965 to more than 20
2. In 1 978, total per capita government expenditures, excluding intergovernmental transfers, amounted to $3494, of which $2963 was for nondefense purposes
l. Government purchases of goods and services constitute approximately 21 percent of the national output. Slightly less than one of every five Americans works for the local, state, or federal government. Taking into account transfer payments, total government expenditures amounted to 36. l percent
7. "Political organization cannot reform human beings. We should not expect it to.The public sector is an alternative to the market. Political organization will influence the direction of human action primarily by modifying the incentive structure. For some types of activity, public sector
6. Which of the following are public goods: (a) an antimissile system surrounding Washington, D.C., (b) a fire department, (c) tennis courts, (d) Yellowstone National Park, (e) elementary schools?
5. "Economics is a positive science. Government by its very nature is influenced by philosophical considerations. Therefore, the tools of economics cannot tell us much about how the public sector works." Do you agree or disagree? Why?
Why or why not? As a test, check the composition of the local zoning board in your community. How many real estate agents, contractors, developers, and landlords are on the board? Are there any citizens without real estate interests on the board?
4. Do you think that special interest groups exert much influence on local government?
3. Do you think that real-world politicians adopt political positions because they will help their election prospects? Can you name a current political figure who consistently puts "principles above politics"? If so, check with three of your classmates and see if they agree.
2. If producers are to be provided with an incentive to produce a good, why is it important for them to be able to prevent nonpaying customers from receiving the good?
1. Explain in your own words what is meant by external costs and external benefits.Why may market allocations be less than ideal when externalities are present?
8. The political process may conflict with economic efficiency when (a) voters have little knowledge of an issue, (b) special interests are strong, or (c) political figures can gain from following shortsighted policies
7. The direction of public sector actions will be shaped by individuals (that is, legislators, voters, lobbyists, and financial contributors). Successful political candidates will seek to offer voters a program that they favor. Voters will be attracted to candidates who reflect their personal view
6. The public sector is an alternate means of organizing economic activity. Public sector action may sometimes improve on the market and lead to an increase in the community's welfare, all individuals considered.
5. Concern for the poor, the desire for more equality, and the desire for equality of opportunity may result in governmental action to redistribute income. Redistribution may also stem from the desire of organized interests to use the public sector to their advantage.
4. The public sector can improve the operation of markets by providing a stable economic environment.
3 , Public goods are troublesome for the market to handle because nonpayingindividual receives is largely unaffected by whether he helps pay for it, most individuals will contribute little. Thus, the market will tend to undersupply public goods.
2. The market will tend to underallocate resources to the production of goods with external benefits and overallocate resources to those products that generate external costs.
I. Lack of competition may make it possible for a group of sellers to gain by restricting output and raising prices. There is a conflict between (a) the self-interest of sellers to collude, restrict output, and raise product prices above their production costs and (b)economic efficiency. Public
what is the
(c) Were your answers to both (a) and (b) consistent? Explain
(b) Do you think gasoline is more essential than food? Should the rich be allowed "to bid food away from the poor"? Should food be rationed, equal portions being granted to both rich and poor? Why or why not?
(a) Do you agree with this opinion? Why?
5. "We cannot allow the price of gasoline to go any higher because it is as essential to 63
4. (a) "The motivating force behind a market economy is individual self-interest."(b) "Cooperation among individuals is the keystone of a market system. Without cooperation there would be no exchange and economic welfare would suffer drastically."Are these statements true or false? Explain your
(d) a banner-year corn crop, (e) an increase in the price of beef?
3. Which of the following do you think would lead to an increase in the current demand for beef: (a) higher pork prices, (b) higher incomes, (c) higher feed grain prices,
Explain your answer in each case.
2. How many of the following "goods" do you think conform to the general law of supply: (a) gasoline, (b) cheating on exams, (c) political favors from legislators, (d) the services of heart specialists, (e) children, (f) legal divorces, (g) the services of a minister?
. What is the purpose of prices? Do prices do anything other than ration goods to those with the most dollar votes? Explain. What factors determine the price of a good?
1 3. Market prices establish a reward-penalty system, which motivates economic participants to work efficiently, invest for the future, supply intensely desired goods, economize on the use of scarce resources, and utilize efficient production methods. Even though decentralized individual planning
1 2. Market prices coordinate the actions of buyers and sellers, bringing their decisions into line with one another. However, long-run equilibrium will often be absent, since dissemination of information about profitable opportunities is generally incomplete and dynamic change is always present.
l 1 . The prices of products and resources communicate information to entrepreneurs, helping them to determine (a) how to use scarce resources and (b) which products are most intensely desired (relative to their opportunity cost) by consumers.
I O. When a price is fixed below the market equilibrium, buyers will want to purchase more than sellers are willing to offer. Shortages will be present. Nonprice factors will become more important in the rationing process. Quality deterioration will be used as a method of raising price (and
9. The constraint of time limits the ability of consumers to adjust to changes in prices.A price increase will usually elicit a larger reduction in quantity demanded with the passage of time. Similarly, the market supply curve is usually more elastic in the long run than for the short-term time
8. Markets are highly interrelated. An increase (decrease) in the demand for a product will cause the demand for resources utilized to produce the product to expand (decline).Similarly, changes in a resource market will have indirect effects. An increase (decrease)in the price of a resource will
7. Changes in input prices, technology, and other factors that influence the producer's costs of production will cause the entire supply curve to shift. An increase (decrease) in supply will cause prices to fall (increase) and quantity demanded to expand (decline) .
6. Changes in consumer income, prices of closely related goods, preferences, and expectation as to future prices will cause the entire demand curve to shift. An increase(decrease) in demand will cause prices to rise (fall) and quantity supplied to increase(decline).
5. When a market is in long-run equilibrium, supply and demand will be in balance and the producer's opportunity cost will equal the market price. If the opportunity cost of supplying the good is less than the market price, profits will accrue. The profits will attract additional suppliers, cause
4. Market prices will bring the confticting forces of supply and demand into balance. If the quantity supplied to the market by producers exceeds the quantity demanded by consumers, price will decline until the excess supply is eliminated. On the other hand, if the quantity demanded by consumers
3. The law of supply states that there is a positive relationship between the price of a product and the amount supplied. Other things constant, an increase in the price of a product will induce the established firms to expand their output and new firms to enter the market. The quantity supplied
2. The law of demand holds that there is a negative relationship between price and amount of a good purchased. A rise in price will cause consumers to purchase less because they now have a greater incentive to use substitutes. On the other hand, a reduction in price will induce consumers to buy
1. Because people want more of scarce goods than Nature has made freely available, a rationing mechanism is necessary. Competition is the natural outgrowth of the necessity to ration scarce goods. A change in the rationing mechanism utilized wi11 alter the form of competition, but it will not
3. sell the final products to consumers for a price
2. transform and combine these factors of production into goods desired by household, and
. organize productive inputs such as labor, land, natural resources, and intermediate goods.
(d) Do you think that the total output of goods in the United States is affected by the closeness of the link between productive contribution and individual reward? Why or why not?
(b) Suppose that the grades in your class were going to be determined by a random draw at the end of the course. How would this influence your study habits?be given an A grade? if grades were based entirely on examinations composed of the multiple-choice questions in the Coursebook?
7. (a) Do you think that your work effort is influenced by whether or not there is a close link between personal output and personal compensation (reward)? Explain.
6. Is exchange productive? If so, what does it produce? Who gains when goods are voluntarily exchanged?
5. Explain why parking lots in downtown areas of large cities often have several decks, whereas many of equal size in suburban areas usually cover only the ground level.
4. Explain why the percentage of college-educated women employed outside of the home exceeds the percentage of women with eight years of schooling who are engaged in outside employment.
3. It takes two hours to travel from New York City to Washington, D.C., by air but eight hours by bus. If the airfare is $44 and the bus fare $20, which would be cheaper for someone whose opportunity cost of travel time is $2 per hour? someone whose opportunity cost is $4 per hour? $6 per hour?
2. Economists often argue that wage rates reflect productivity. Yet the wages of housepainters have increased nearly as rapidly as the national average even though these workers use approximately the same methods that were applied 50 years ago.• Can you explain why the wages of painters have
I. "The principle of comparative advantage gives individuals an incentive to specialize in those things that they do best." Explain in your own words why this is true.
6. SENATOR DocooDER: I favor an increase in the minimum wage because it would help the unskilled worker.SENATOR DoNOTHINC: I oppose an increase in the minimum wage because it would cause the unemployment rate among the young and the unskilled to rise.ls the disagreement between Senator Dogooder and
5. "Reasonable rental housing could be brought within the economic means of all if the government would prevent landlords from charging more than $200 per month rent for a quality three-bedroom house." Use the economic way of thinking to evaluate this view.
4. What's Wrong with This Economic Experiment?A researcher hypothesizes that the medical attention received by U.S. citizens is inadequate because many people cannot afford medical care. He interviews 1 00 randomly selected individuals and asks them, "Would you use physician services or hospital
3. Write a couple of paragraphs, explaining in your own words the meaning and essential ingredients of the economic way of thinking.
2. What does it mean to economize? Do you attempt to economize? Why or why not?
(e) An increase in the rental price of apartments on one's decision to build additional housing units
(d) An increase in the price of beef on one's decision to have steak every night this week
(c) A reduction in the number of exam questions that relate to the text on the student's decision to read the text
(b) A change in the meeting time of the introductory economics course from 1 1 :00 A.M.to 7:30 A.M. on one's decision to attend the lectures
(a) A reduction in the temperature from 80° to 50° on one's decision to go swimming
1 . Indicate how each of the following changes would inffuence the incentive of a decision-maker to undertake the action described:
(b) Individuals make decisions purposefully, always seeking to choose the option they expect to be most consistent with their personal goals. Purposeful decision-making leads to economizing behavior
(a) Among economic goods, there are no free lunches. Someone must give something up if we are to have more scarce goods.
3. Economics is a method of approach, a way of thinking. The economic way of thinking emphasizes the following:
2. Scarcity and poverty are not the same thing. Absence of poverty implies that some basic level of need has been met. Absence of scarcity would mean that all of our desires for goods have been met. We may someday be able to eliminate poverty, but scarcity will always be with us.
1. Scarcity and choice are the two essential ingredients of an economic topic. Goods are scarce because desire for them far outstrips their availability from Nature. Since scarcity prevents us from having as much of everything as we would like, we must choose from among the alternatives available
WHAT DO ECONOM ISTS DO?
7 What's Wrong with This Way of Thinking?"Public policy is necessary to protect the average c1t1zen from the power of vested interest groups. In the absence of government intervention, regulated industries, such as airlines, railroads, and trucking, would charge excessive prices, products would be
6 One explanation for the shortsightedness effect in the public sector is that future voters cannot vote now to represent their future interests. Are the interests of future generations represented in market decisions? For example, if the price of chromium were expected to rise rapidly over the
5 The liquor industry contributes a large share of the political funds to political contests on the state level. Yet its contributions to candidates for national office are minimal. Why do you think this is true? (Hint: Who regulates the liquor industry?)
4 Do political entrepreneurs ever have an incentive to deceive voters about the cost of legislation? If so, when? Can you give any examples of cases in which this has happened?
3 Which of the following public sector actions are designed primarily to correct "market failure": (a) laws against fraud, (b) truth-in-lending legislation, (c) rate regulation in the telephone industry, (d) legislation setting emission control standards, (e)subsidization of pure research, (f)
2 Do you think that the political process works to the advantage of the poor? Explain.Are the poor well organized? Do they make substantial campaign contributions to candidates? Are they likely to be well informed? Is it surprising that a large amount of the approximately $300 billion of cash
1.Do you think that advertising exerts more influence on the type of car chosen by a consumer than on the type of politician chosen by the same person? Explain your answer.
7 What's Wrong with This Way of Thinking?"Corporations are the major beneficiaries of our lax pollution control policy. Their costs are reduced because we permit them free use of valuable resources- clean water and air-in order to produce goods. These lower costs are simply added to the profits of
6 Are people more likely to take better care of an item they own jointly (communally)or one they own privately? Why? Does the presence of private property rights affect the behavior of persons in noncapitalist nations? Why or why not?
5 What are public goods? Why does a decentralized pricing system have trouble producing an adequate amount of public goods?
4 Which of the following goods are most likely to result in a large number of dissatisfied customers : (a) light bulbs, (b) food at a local restaurant, (c) food at a restaurant along an interstate highway, (d) automobile repair service, (e) used cars, (f) plumbing services,(g) used automatic
3 "When goods generate external benefits, the market is unable to produce an adequate supply. This is why the government must provide such goods as police and fire protection, education, parks, and vaccination against communicable diseases. "(a) D o you agree? Explain.(b) Does governmental
2 Devise a tax plan that would (a) reduce the extent of automobile pollution, (b)provide an incentive for entrepreneurs to develop new products that would limit pollution, and (c) permit continued automobile travel for those willing to bear the total social costs. Explain how your plan would
1 Why may external cost be a cause of economic inefficiency? Why is it important to define property rights clearly? Explain.
7 What's Wrong with This Way of Thinking?"Central planning makes it possible for an economy to invest more and to expand at a more rapid rate. Consumer incomes, stimulated by the high rates of capital formation, also increase rapidly. Thus, the consumer is the major beneficiary of central planning,
6 Do you think that the United States should encourage firms to adopt the lifetime employment commitment offered by the major firms in Japan? Why or why not? What are the advantages and disadvantages of this system?
5 What major factors have contributed to the rapid economic growth of Japan? Do you think that the Japanese economy will grow as rapidly in the future as it has in the past? Why or why not?
4 "Socialism means production for use, not for profit. Workers contribute according to their qualifications, and they are rewarded according to egalitarian principles. Socialism takes power from the business elite and grants it to the workers who, after all, produce the goods." Analyze this point
3 How does Yugoslav socialism differ from socialism as practiced in the Soviet Union?Which system do you think is better? Why?
2 What do you think are the major advantages of a centrally planned economy?What are the major disadvantages? Do you believe that market allocation is superior or inferior to centralized planning? Explain your answer.
1.Compare and contrast the role of business managers of firms in the United States, the Soviet Union, and Yugoslavia. In which country would managers have the greatest incentive to operate thefirm efficiently?
1.6 Discuss the importance of the following as determinants of economic growth: (a)natural resources; (b) physical capital; (c) human capital; (d) technical knowledge;(e) attitudes of the work force; and (f) size of the domestic market.
1.5 The size of the population in some countries may partially reflect the desire of some people for additional security in the form of children to support them in their old age.Is this method of providing for one's retirement inferior to our system of compulsory social security? Why or why not?
1.4 As the people of a nation become wealthier, do you think that they will save a larger percentage of their income? Why? As a nation becomes wealthier, do you think that the length of the average workweek will decline? Why? Does the experience of the United States support your answer? Explain.

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Macroeconomics Private And Public Choice 3rd Edition James D Gwartney - Solutions

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