UT ECO 321 - Problem Set 1_Solutions_Fall 2017 (7 pages)

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Problem Set 1_Solutions_Fall 2017



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Problem Set 1_Solutions_Fall 2017

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Pages:
7
School:
University of Texas at Austin
Course:
Eco 321 - Public Economics

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Economics 321 Public Economics Prof Marika Cabral TA Katherine Keisler Fall 2017 UT Austin Problem Set 1 Due Monday Sept 18th 1 Ch1 Consider the four basic questions of public finance listed in the chapter Which of these questions are positive questions that can be proved or disproved and which are normative questions of opinion Explain your answer The four basic questions of public finance 1 When should the government intervene in the economy The word should suggests that this is a question about which opinion will vary so it is normative 2 How might the government intervene This question is positive It asks How does the government actually intervene now and how might it intervene in the future One can check whether a government might intervene in a particular way directly by examining the behavior of existing and future governments 3 What is the effect of those interventions on economic outcomes Economic effects can be measured and thus are not a matter of opinion so this question is positive 4 Why do governments choose to intervene in the way they do This is a factual positive question It may be difficult to directly observe the answer but one can potentially learn about the motivations behind a government s interventions by looking at patterns of behavior over time 2 Ch1 In order to make college more affordable for students from families with fewer resources a government has proposed allowing the student of any family with less than 50 000in savings to attend public universities for free Discuss the direct and possible indirect effects of such a policy This policy would make college cheaper for students from families with less than 50 000 in savings There would be two direct effects of this policy First it would make the families of students who already intended to attend college better off if the families that were saving had less than 50 000 in savings Second it would probably encourage additional students from low savings families to attend college A potential indirect effect of this policy would be to reduce the savings of other families families that were saving money for a college education but would stop doing so when they could anticipate getting a free ride if they don t save 3 Ch1 Proper hygiene such as regular hand washing can greatly limit the spread of many diseases How might this suggest a role for public interventions What kinds of public interventions might be possible Suggest three distinct types of possible interventions Individuals tend to ignore the external costs they impose on others by failing to wash their hands frequently enough or by failing to employ other sorts of hygienic practices This suggests that they tend to wash their hands less than optimally and that there may there fore be a role for public interventions One possible intervention would be a requirement that individuals wash their hands after using restrooms Such regulations are imposed for employees at businesses for example A second



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