Bài tập

Sách Public Finance, 9th Edition (Harvey Rosen, Ted Gayer)

Chương Tools of positive analysis
Bài 1
Bài 3
Bài 6
Chương Tools of normative analysis
Bài 1
Bài 4
Bài 6
Bài 10
Bài 11
Chương Public Goods
Bài 1
Bài 2
Bài 11
Bài 13
Chương Externalities
Bài 4
Bài 6
Bài 8
Bài 10
Bài 11
Chương 2 – Positive analysis
1. In 2008, presidential candidate John McCain proposed extending the
cut in marginal income tax rates passed during the Bush administration.
Explain why theory alone cannot predict how labor supply would be
affected if this proposal were implemented.
If there were no political or legal impediments to doing so, how could you
design an experimental study to estimate the impact of lower marginal
tax rates on labor supply?

ANSWER
A change in the marginal tax rate changes the individual’s net wage. This
generates both an income effect and a substitution effect.

As long as leisure is a normal good, these effects work in opposite directions.

Hence, one cannot tell a priori whether labor supply increases or decreases.

If there were no political or legal impediments, an experimental study could

be conducted in which a control group confronts the status quo, and an
experimental group faces the new tax regime. Other things that affect work
effort would impact both the control group and the experimental group, so
any difference in work effort between the two groups could be attributed to
the change in marginal tax rates.

3. A researcher conducts a cross-sectional analysis of workers and finds a

positive correlation between time spent on a computer at work and wages.

The researcher concludes that computer use increases wages and

advocates a policy of computer training for all children. What is a possible
problem with this analysis?
ANSWER

The workers who spend time on a computer probably have other skills and
abilities that contribute to higher wages, so training children to use
computers would not necessarily cause their earnings potential to improve
=> vấn đề thiếu biến. Có 3 điều kiện cần thỏa để thiết lập mối quan hệ nhân
quả: X và Y biến động với nhau, X xảy ra trước Y, các lý do khác giải thích
tương quan của X với Y đã được tính đến.

This study illustrates the difficulty of determining cause and effect based on
correlations. The data do not reveal whether using a computer causes higher
earnings, or whether other factors cause workers to use computers and to
earn higher wages.

6. Suppose that five states reduce income taxes in a given year. You are
interested in estimating whether the tax cut has increased saving, and you
find that the saving rate for residents of these five states increased by 2
percent in the year after it was introduced.

Can you reasonably conclude that the tax cut caused the increase in saving?

How would you conduct a difference-in-difference analysis to estimate the

impact on saving? What assumption must hold for the difference-in-
difference analysis to be valid?
ANSWER

Since only five states reduced income taxes, we could examine what
happened in a control group of states (those with an income tax but with no
change in the tax rates) and compare savings rates between the two. This is
important because other factors affect savings rates, but if other factors
affected both the control group and the treatment group, then we can
conclude that the treatment (lower taxes) caused the change in savings.

If, for example, the saving rate for the five states with lower taxes (the
treatment group) increased by two percent, while the savings rate for the
other states (the control group) increased by one percent, then we could
conclude that lower taxes caused the saving rate to increase by one percent
—the difference between the two percent increase in the treatment group
and the one percent increase in the control group.

The assumption that must hold for this difference in difference approach to
be valid is that in the absence of the income tax cut, the savings rates of the
treatment rates would have increased by the same percentage as the savings
rates of the control states.

Chương Tools of normative analysis

Bài 1
Bài 4
Bài 6
Bài 10
Bài 11
 1. In which of the following markets do you expect efficient outcomes? Why?
Tại sao ko efficient?
a. Hurricane insurance for beach houses
b. Medical care
c. Stock market
d. MP3 players
e. Loans for students who wish to attend college
f. Housing

ANSWER
Các điều kiện để thị trường hiệu quả: không có rào cản tham gia thị trường,
các bên là price takers; không có bất cân xứng thông tin => vì nếu có dẫn đến
thiệt hại cho bên thiếu thông tin, hay vấn đề hàng hóa công.

a. In this particular insurance market, one would not expect asymmetric

information to be much of a problem – the probability of a hurricane is
common knowledge. Moral hazard could be an issue – people are more
likely to build near a beach if they have hurricane insurance. Still, one would
expect the market for hurricane insurance to operate fairly efficiently.

b. There is substantial asymmetric information in the markets for medical

insurance for consumers and also malpractice insurance for physicians. For
efficient consumption, the price must be equal to the marginal cost, and the
effect of insurance may be to reduce the perceived price of medical care
consumption (khiến người mua bảo hiểm cho rằng giá dịch vụ y tế < giá thực
tế của nó). That would lead to consumption above the efficient level.
Because of the roles of regulation, insurance, taxes, and the shifting of costs
from the uninsured to the insured, there is little reason to expect the market
to be efficient.
c. In the stock market, there is good information and thousands of buyers and
sellers. We expect, in general, efficient outcomes.

d. From a national standpoint, there is a good deal of competition and

information with regard to MP3 players and music. The outcome will likely
be efficient for MP3 players and music. However, some firms might exercise
some market power through high brand awareness and proprietary
downloading systems.

e. The private market allocation is likely inefficient without government

intervention. Student loan markets may suffer from asymmetric information
– the student knows better than the lender whether he will repay the loan or
default on it, a form of adverse selection.

f. The market for housing is likely to be relatively efficient. Some inefficiencies

may exist, such as asymmetric information—the seller knows more about the
house than the buyer—and differentiated products. But, the market has
developed to mitigate these inefficiencies. For example, a buyer can employ
a home inspector to help him understand more about the quality of the
home. Also, a large number of homes on the market increases competition.

4. Many controversial issues in public finance concern when a central

authority should allow markets to work and when it should intervene.
Generally we think of the government as the central authority, but it could be
a university as well. For example, according to Princeton University’s student
newspaper, the Daily Princetonian (April 16, 2007), there was “a flourishing
market of graduation ticket buyers and sellers on [the Internet].” However, the
dean of students shut down the market, arguing that “[s]elling tickets
undermines that spirit of community, and undermines the sense of class unity
that seniors have worked hard to create.”
To analyze this policy, assume that a typical senior’s utility depends only on
two commodities, graduation tickets and a composite of all other goods.
Assume there are two students, Angelo and Bahn, each of whom starts out
with three tickets. However, Angelo is “rich” and has twice the amount of all
other goods as Bahn. For simplicity, you may assume that graduation tickets
are infinitely divisible.
 a. Draw an Edgeworth Box showing the initial allocation, assuming
conventionally shaped indifference curves for both students.
b. Using the Edgeworth Box, explain how the ban on selling tickets can lead
to an inefficient outcome.
c. Using the Edgeworth Box, represent a situation in which the ban on selling
tickets does not reduce efficiency for these two students.

a. Point A is the initial allocation.

b. Given the initial allocation in the Edgeworth Box above, one can see that
both the seller and buyer can reach a higher indifference curve at point B by
trading tickets and other goods without either person being worse off.
Therefore, the current allocation is inefficient.

c. A situation in which the original allocation is efficient and the trading does
not affect efficiency is shown below at point A.
Imagine a simple economy with only two people, Augustus and Livia.
a. Let the social welfare function be W= UL+UA where UL and UA are the
utilities of Livia and Augustus, respectively. Graph the social indifference
curves. How would you describe the relative importance assigned to their
respective well-being?
b. Repeat part a when W= UL + 2UA
c. Assume that the utility possibilities curve is as follows:

Graphically show how the optimal solution differs between the welfare
functions given in parts a and b.
a. Social indifference curves are straight lines with slope of –1. As far as
society is concerned, the “util” to Augustus is equivalent to the “util” to Livia.
W= UL + UA
4=2+2
4=1+3
4=3+1

b. Social indifference curves are straight lines with slope of –2. This reflects
the fact that society values a “util” to Augustus twice as much as a “util” to
Livia, nghĩa là để tăng 1 đơn vị util cho Augustus, xã hội sẵn sàng đánh đổi 2
đơn vị util của Livia.

W= UL + 2UA
4 = 2 + 2.1
4 = 1 + 2*1.5
4 = 0 + 2.2
Bản thân đường utility possibilities curve thể hiện các điểm phân phối hiệu
quả, nên chỉ cần áp đường bàng quan XH vào để xác định điểm vừa hiệu quả
vừa công bằng. => ko cần phân tích đồ thị, nhưng chủ yếu để thấy tùy thuộc
vào đường bàng quan mà xác định được điểm phân phối nguồn lực.
 ANSWER
Social welfare is maximized when Mark’s marginal utility of income is equal
to Judy’s marginal utility of income. Taking the derivative of Mark’s utility
function to find his marginal utility function yields MU M = 50/(IM1/2) and taking
the derivative of Judy’s utility function yields MU J = 100/(IJ1/2). If we set MUM
equal to MUJ, the condition for maximization becomes I J = 4IM and, since the
fixed amount of income is $300, this means that Mark should have $60 and
Judy should have $240 if the goal is to maximize social welfare = U M + UJ.

a. If the food is evenly distributed between Tang and Wilson, Tang will have 14.14
units of utility and Wilson will have 7.07 units of utility.

b. If the social welfare function is U T+UW, then the marginal utilities of both should
be equal to maximize social welfare. Equate MU T=1/(2FT1/2) to
MUW=1/(4FW1/2) and substitute FT=400-FW. Therefore, FT=320 and FW=80.

c. If the utility of both Tang and Wilson must be equal, then set U T=UW and
substitute FT=400-FW and solve. Therefore, FT=80 and FW=320.
Chương Public Goods
Bài 1
Bài 2
Bài 11
Bài 13
1. Which of the following do you consider pure public goods? Private goods?
Why?
a. Wilderness areas
b. Satellite television
c. Medical school education
d. Public television programs
e. Automated teller machine (ATM)
- không cạnh tranh
- không loại trừ
Khu vực có cảnh hoang dã Không Cạnh tranh: rộng thì đạt, chật =>
không đạt
Không loại trừ: đạt
=> hhc thuần túy, nhưng chật là hhc ko
thuần túy
Truyền hình vệ tinh Không cạnh tranh: đạt
Không loại trừ: không đạt (trả tiền thuê
bao)
=> ko thuần túy
Đào tạo y => hàng hóa tư
Các chương trình TV công Ko cạnh tranh: đạt
chúng Không loại trừ: đạt
=> thuần túy
Máy ATM Ko canh tranh: ko cao điểm => đạt,
nhưng thường fai xếp hàng
Ko loại trừ => ko đạt
=> hh tư
a. Wilderness area is an impure public good – at some point, consumption
becomes nonrival; it is, however, nonexcludable.
b. Satellite television is nonrival in consumption, although it is excludable;
therefore it is an impure public good.
c. Medical school education is a private good.
d. Television signals are nonrival in consumption and not excludable (when
broadcast over the air). Therefore, they are a public good.
e. An automatic teller machine is rival in consumption, at least at peak times. It
is also excludable as only those patrons with ATM cards that are accepted by
the machine can use the machine. Therefore the ATM is a private good.

2. Indicate whether each of the following statements is true, false, or

uncertain, and justify your answer.
a. Efficient provision of a public good occurs at the level at which each
member of society places the same value on the last unit.
b. If a good is nonrival and excludable, it will never be produced by the
private sector.
c. A road is nonrival because one person’s use of it does not reduce another
person’s use of it.
d. Larger communities tend to consume greater quantities of a nonrival good
than smaller communities

a. Sai
b. HH ko cạnh tranh, có loại trừ => ko đc cung cấp bởi khu vực tư.
HHC => free rider (ko loại trừ) => có anh huong tieu cuc => ko hiệu quả
Ko canh tranh, nhưng loại trừ => MC = MB = 0 => khu vuc tu ko thể cung
cap hieu qua.
c. Đường ko cạnh tranh
d. Sai
 Solutions:
a. False. Efficient provision of a public good occurs at the level where total
willingness to pay for an additional unit equals the marginal cost of producing
the additional unit.
b. False. Due to the free rider problem, it is unlikely that a private business firm
could profitably sell a product that is non-excludable. Đối với excludable
goods, vẫn cần phải biết preferences của cá nhân, nên vẫn khó để khu vực tư
có thể cung cấp một cách hiệu quả. However, Public goods may be privately
supported through volunteerism, such as when people who attend a fireworks
display voluntarily contribute enough to pay for the show.
c. Uncertain (có thể đúng/sai tùy hoàn cảnh). This statement is true if the road is
not congested, but when there is heavy traffic, adding another vehicle can
interfere with the drivers already using the road.
d. False. There will be more users in larger communities, but all users have
access to the quantity that has been provided since the good is nonrival, so
there is no reasons larger communities would necessarily have to provide a
larger quantity of the nonrival good.

11. Suppose that there are only two fishermen, Zach and Jacob, who fish
along a certain coast. They would each benefit if lighthouses were built along
the coast where they fish. The marginal cost of building each additional
lighthouse is $100. The marginal benefit to Zach of
each additional lighthouse is 90 - Q, and the marginal benefit to Jacob is 40 -
Q, where Q equals the number of lighthouses.
a. Explain why we might not expect to find the efficient number of
lighthouses along this coast.
b. What is the efficient number of lighthouses? What would be the net benefits
to Zach and Jacob if the efficient number were provided?
 MB và MC
MB z = 90 – Q
MB J = 40 – Q
b. Hai đăng => HHC
SMB = 130 – 2Q = MC = 100
=> Q = 15

a. Zach’s marginal benefit schedule shows that the marginal benefit of a

lighthouse starts at $90 and declines, and Jacob’s marginal benefit starts at
$40 and declines. Neither person values the first lighthouse at its marginal
cost of $100, so neither person would be willing to pay for a lighthouse acting
alone.
b. Zach’s marginal benefit is MBZACH=90-Q, and Jacob’s is MBJACOB=40-Q. The
marginal benefit for society as a whole is the sum of the two marginal
benefits, or MB=130-2Q (for Q≤40), and is equal to Zach’s marginal benefit
schedule afterwards (for Q>40). The marginal cost is constant at MC=100, so
the intersection of aggregate marginal benefit and marginal cost occurs at a
quantity less than 40. Setting MB=MC gives 130-2Q=100, or Q=15. Net
benefit can be measured as the area between the demand curve and the
marginal benefit of the 15th unit. The net benefit is $112.5 for each person, for
a total of $225.
Britney and Paris are neighbors. During the winter, it is impossible for a
snowplow to clear the
street in front of Britney’s house without clearing the front of Paris’s.
Britney’s marginal benefit from snowplowing services is 12 - Z, where Z is
the number of times the street is plowed.
Paris’s marginal benefit is 8 - 2Z. The marginal cost of getting the street
plowed is $16.

Sketch the two marginal benefit schedules and the aggregate marginal benefit
schedule.
Draw in the marginal cost schedule, and find the efficient level of provision
for snowplowing
services.

ANSWER:
Britney’s marginal benefit is MBBRITNEY=12-Z, and Paris’s is MBPARIS=8-2Z.
The marginal benefit for society as a whole is the sum of the two marginal
benefits, or MB=20-3Z (for Z≤4), and is equal to Britney’s marginal benefit
schedule afterwards (for Z>4). The marginal cost is constant at MC=16.
Setting MB=MC along the first segment gives 20-3Z=16, or Z=4/3, which is
the efficient level of snowplowing. Note that if either Britney or Paris had to
pay for the entire cost herself, no snowplowing would occur since the
marginal cost of $16 exceeds either of their individual marginal benefits from
the first unit ($12 or $8). Thus, this is clearly a situation when the private
market does not work very well.
ote, however, that if the marginal cost were somewhat lower, (e.g., MC≤8),
then it is possible that Paris could credibly free ride, and Britney would
provide the efficient allocation. This occurs because if Britney believes that
Paris will free ride, Britney provides her optimal allocation, which occurs on
the second segment of society’s MB curve, which is identical to Britney’s MB
curve (note that Paris gets zero marginal benefit for Z>4). Since Paris is
completely satiated with this good at Z=4, her threat to free ride is credit if
Britney provides Z>4. See the graph below.

MBParis
MBBritn
ey

Chương Externalities
Bài 4
Bài 6
 Bài 8
Bài 10
Bài 11

a. The number of parties per month that would be provided privately is P.

b. See schedule MSBp.

c. P*. Give a per-unit subsidy of $b per party to induce the correct number of
parties.

d. The optimal subsidy is $b. The total subsidy=abcd. “Society” comes out
ahead by ghc, assuming the subsidy can be raised without any efficiency
costs. (Cassanova’s friends gain gchd; Cassanova loses chd but gains abcd,
which is a subsidy cost to government.)

6. For each of the following situations, is the Coase Theorem applicable? Why
or why not?
a. A farmer who grows organic corn is at risk of having his crop contaminated
by genetically
modified corn grown by his neighbors.
b. In Brazil it is illegal to catch and sell certain tropical fish. Nevertheless, in
some remote
parts of the Amazon River, hundreds of divers come to capture exotic fish for
sale on the international black market. The presence of so many divers is
depleting the stock of exotic fish.
c. In the state of Washington, many farmers burn their fields to clear the wheat
stubble and prepare for the next planting season. Nearby city dwellers
complain about the pollution.
d. Users of the Internet generally incur a zero incremental cost for transmitting
information. As a consequence, congestion occurs, and users are frustrated by
delays.
a. It is very likely that the farmer could negotiate with the neighbors, provided
property rights are clearly defined. The Coase Theorem is therefore
applicable.
b. It is unlikely that negotiation could result in an efficient outcome in this case.
It is likely that there are a great number of divers involved + property rights
unclear, making negotiation very difficult.
c. Property rights are not being enforced + two many people involved, making
negotiation through the Coase Theorem impossible.
d. There are too many people involved for private negotiation.
8. In India, a drug used to treat sick cows is leading to the death of
many vultures that feed off of dead cattle. Before the decrease in
the number of vultures, they sometimes used to smash into
the engines of jets taking off from New Delhi’s airports, posing a
serious threat to air travelers.
However, the decline of the vulture population has led to a sharp
increase in the populations
of rats and feral dogs, which are now the main scavengers of
rotting meat [Gentleman, 2006,
p. A4]. There have been calls for a ban on the drug used to treat
the cows.
Identify the externalities that are present in this situation.
Comment on the efficiency of banning the drug.
How would you design an incentive-based regulation to attain an
efficient outcome?

ANSWER
The use of the drug to treat sick cows leads to a positive
externality (the benefit enjoyed by air travelers) as well as a
negative externality (the costs created by a larger number of rats
and feral dogs). Banning the drug might raise or lower efficiency,
depending on whether the positive externality is larger or whether
the negative externality is larger.
There are many ways to design incentive-based regulations.
Policymakers could determine the efficient level of drug usage and
then either allocate or sell the right to use the drug for sick cows.
 10. American suburbs are expanding to more rural areas at the same time as
pig farms are expanding in size [Economist, 2007d, p. 36]. The smells
emanating from the massive amounts of pig manure adversely affect property
values.
Imagine that the Little Pigs (LP) hog farm is situated near 100 houses. The
following table shows, for each level of LP’s output, the marginal cost (MC)
of a hog, the marginal benefit (MB) to LP, and the marginal damage (MD)
done to property values:

a. How many hogs does LP produce?

b. What is the efficient number of hogs?
c. Suppose the owner of LP can reduce the marginal damages of hog smells
by twothirds by modifying the hogs’ diet. The modified diet increases the
marginal cost of each hog by $100. What is the efficient number of hogs?
a. When the Little Pigs hog farm produces on its own, it sets marginal benefit
equal to marginal cost. This occurs at 4 units.
b. The efficient number of hogs sets marginal benefit equal to marginal social
cost, which is the sum of MC and MD. At 2 units, MB=MSC=1600.
c. The efficient number of hogs sets marginal benefit equal to marginal social
costs. At 3 hogs, MB=MSC=1600.
11. The private marginal benefit for commodity X is given by 10 - X, where X
is the number of units consumed. The private marginal cost of producing X is
constant at $5. For each unit of X produced, an external cost of $2 is imposed
on members of society.
1. In the absence of any government intervention, how much X is produced?
2. What is the efficient level of production of X?
3. What is the gain to society involved in moving from the inefficient to the
efficient level of production?
4. Suggest a Pigouvian tax that would lead to the efficient level. How much
revenue would the tax raise?

Private Marginal Benefit = 10 - X

Private Marginal Cost = $5
External Cost = $2
Without government intervention, PMB = PMC; X = 5 units.
Social efficiency implies PMB = Social Marginal Costs = $5 + $2 = $7; X = 3
units.
Gain to society is the area of the triangle whose base is the distance between
the efficient and actual output levels, and whose height is the difference
between private and social marginal cost. Hence, the efficiency gain is ½ (5 -
3)(7 - 5) = 2
A Pigouvian tax adds to the private marginal cost the amount of the external
cost at the socially optimal level of production. Here a simple tax of $2 per
unit will lead to efficient production. This tax would raise ($2) (3 units) = $6
in revenue.