QUESTION TWO

1. Why is it difficult to empirically determine the degree to which government spending crowds out private provision of public goods? [5 Marks]
2. Suppose 20 people each have the demand Q = 20 - 2P for streetlights, and 5 people have the demand Q = 18 - 2P for streetlights. The cost of building each streetlight is 10. If it is impossible to purchase a fractional number of streetlights, how many streetlights are socially optimal? [6 Marks]
3. Some goods and services are provided directly by the government, while others are funded publicly but provided privately. What is the difference between these two mechanisms of public financing? Why do you think the same government would use one approach sometimes and the other approach at other times? [6 Marks]
4. Consider the four basic questions of public finance listed in Lecture 1. Which of these questions are positivethat is, questions that can be proved or disprovedand which are normative that is, questions of opinion? Explain your answer.
5. People in your neighbourhood pay annual dues to a neighbourhood association. This association refunds neighbourhood dues to selected home owners who do a particularly nice job of beautifying their yards. At the most recent home owners association meeting, home owners voted to end this practice because they felt that it was unfair that some people would not have to pay their share of the costs of maintaining the neighbourhood. What is likely to happen to the overall level of neighbourhood beautification? Explain.
   1. [6 Marks]
6. Consider the rival and excludable properties of public goods. To what degree is radio broadcasting a public good? To what degree is a highway a public good? [5 Marks