 |
B) Suppose that you are a member of Congress and you believe in the utilitarian social welfare function. How would you determine whether to vote for or against the policy?
|
|
|
|
The Utilitarian social welfare function demonstrates the correlation between two utility individuals. So if the nominal wage will be raised by a random sum, the utility will obvious raise. Here the graph that shows this.
If i was in Congress, i will vote against because of the deadweight loss. We should find the optimal balance between the labour supply and labour demand. We can see it in division A.
C) Explain why this policy choice demonstrates a trade-off between equity and efficiency.
'Equity-Efficiency Tradeoff'- An economic situation in which there is a perceived tradeoff between the equity and efficiency of a given economy. This tradeoff is commonly viewed within the context of the production possibility frontier, where any additional gains in production efficiency must be offset by a reduction in the economy's equity.
Within this equity and efficiency tradeoff, equity refers to the economy's financial capital, while efficiency refers to the future efficiency in the production of goods and services. This theory asserts that, in order for a nation to become wealthier, it must save its equity. However, these additional savings will hurt the development of more efficient production in the future.
D) Explain the Earned Income Tax Credit. Explain why the EITC may provide equity with small losses in efficiency.
Earned Income Tax Credit (EITC) A federal income tax policy that subsidizes the wages of low-income earners. The EITC subsidizes the wages of low-income earners to accomplish two goals: redistribution of resources to lower-income groups and increases in the amount of labor supplied by these groups.
The EI TC program has grown from less than $1 billion in 1976 to nearly $45 billion today. Numbers are measured in current dollars.
The EITC exacerbates the marriage penalty by combining both spouses’ incomes to determine eligibility for the credit. Two fairly low incomes can combine to equal a total family income high enough to place the family in the phase-out portion of the EITC. In that situation, adding a second income to the first puts the second income in the range of a very high marginal tax rate. This effect could result in a labor supply reduction for secondary earners in these families. To counter this effect, the EITC could be amended so that the average of the two spouses’ salaries determined the family income, it could provide for a much longer plateau before phase-out for two-earner families, or it could be applied to individual incomes, regardless of marital status, rather than to family income.
VARIANT 15
Most arguments for government funding of medical care rest on equity concerns. Explain how medical care can be a public good. If medical care is a public good, explain how this would lead to a market failure in that individuals would receive less medical care than is efficient.
Public goods would not be produced through the market, because they are indivisible and are not subject to the exclusion principle. National defense is a public good that is there for all of the U.S. people. Government paid for that through tax revenue. Those who receive benefits without paying are part of the so-called free-rider problem. Private producers would not be able to find enough paying buyers for public goods because of the free-rider problem. Therefore, public goods are not produced voluntarily through the market but must be provided by the public sector and financed by compulsory taxes.
|
|
|
Quasi-public goods are those that have large positive externalities, so government will sponsor their provision. Otherwise, they would be underproduced. Medical care, education, and public housing are examples.
A market failure is any feature of the market that reduces allocative efficiency. Incomplete markets. An incomplete market is one in which consumers would be willing to pay more than the cost of a good or service but it is not provided. Insurance markets are clearly incomplete. Today, there are millions of people who are denied participation in the market (due to medical underwriting) who might be willing to pay a fair premium. Given the low level of competition in insurance markets, it is very likely that products that would be profitable are not offered (because they’re less profitable than what is offered).
And Russia federal budget. How is money spent by the government?
2015.
| Name | Bln RUB | |
| Total | 2 958,7 | |
| National Defense | 1 261,0 | |
| Social Policy | 615,9 | |
| National Economy | 269,2 | |
| National Security | 251,7 | |
| Intergovernmental transfers of general budgets of the budgetary system of the Russian Federation | 138,9 | |
| Others | 422.1 |
|
|
|
