Which of the following would make it less likely that individuals will be able to resolve a negative externality without government intervention? The transaction costs associated with bargaining are high. The individuals involved in the dispute cannot accurately gauge the cause or the source of the damage.
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- Transaction costs and political power might hamper the choice of public solution to anexternality. DiscussSuppose that in the midst of a financial crisis, Mr Burns is forced to sell the SNPP to wealthy chocolate tycoons. The first thing the tycoons do is reverse Mr. Burns’ discriminatory policy against the obese. They eliminate the wage penalty associated with obesity but leave intact the pooled health insurance program, so Homer and Smithers still pay the same premium. a. Now do Homer’s jelly-eating, slothlike habits impose a negative externality on Smithers? Explain the nature of the negative externality. Is there any loss in net social welfare from this externality? Explain why or why not, and describe carefully any assumptions you need to answer this question. b. How might an adverse selection death spiral arise at the new SNPP?Show how education can signal the worker’s innate ability in the labor market. What is a pooled equilibrium? What is a perfectly separating signaling equilibrium?
- Suppose there are two types of persons: high-ability and low-ability. Firms wish to use education as a screening device where they intend to pay $25,000 to workers without a diploma and $35,000 to those with a diploma. Assume it costs $8,000 of for a high-ability person to obtain a diploma. If is cost $10,000 for a low-ability person to obtain a diploma, can the firm use diploma to screen low ability from high ability worker. Explain and support your answer using math. How would your answer change it the cost of obtaining a diploma for a low productivity person were to increase to $15,000.Ronald Coase in his classic October 1960 article “The Problem of Social Cost” (Journal of Law and Economics 3[1], pp.1-4) discussed collective ownership of resources. Collective ownership often means that no one takes care of resources, or at minimum that resources are not cared for as well as if they were privately owned. What are some of problems with collective ownership in the health care industry? Can you think of some examples in which collective ownership works? In what situations does it not work?Acceptable social norms and social recognition act like corrective taxes and subsidies. Social norms act as a corrective tax by discouraging people from partaking in an action that will cause a negative externality by fear or shame of being judged harshly by others in society. Likewise social recognition can act as a corrective subsidy and cause people to partake in more activities that will create positive externalities. Classify the following examples of social norms by whether the behavior is undertaken to avoid society's judgement, i.e., working as a corrective tax, or to receive social recognition, i.e., working as a corrective subsidy. Corrective Tax Corrective Subsidy
- Suppose you’re trying to get your friends to go todinner with you. Would it be wiser to frame thedecision as costing only $5 more than the foodthey’d make for themselves, or that it will cost$5 less than every other restaurant around town?Explain proxemics as a non-verbal form of communication.Problem: Consider a state in which automobile drivers are divided equally into two types of drivers: careful and reckless. The average annual auto-insurance claim is $400 for a careful driver and $1,200 for a reckless driver. Suppose that the state adopts an insurance system under which all drivers are placed in a common pool and allocated to insurance companies randomly. An insurance company cannot refuse coverage to any consumer it is assigned, but a consumer who is unhappy with the insurance company has the option of being reassigned (randomly) to another. By law, each insurance company must charge the same price to all its customers (i.e. no price discrimination). Assume that the insurance market is perfectly competitive and that claims represent all the costs associated with provision of insurance. Predict the minimum price of auto insurance under two alternative policy scenarios given below. Show all of your work and explain your answers. A. Auto insurance is mandatory B. Auto…
- QUESTION 7 Neomercantilists are more skeptical than liberals that states can move to Pareto-optimal outcomes in prisoners' dilemma because o they believe that prisoners' gains and losses are not likely to be balanced and equitable. o they are very concerned about free riding by states. o they view the prisoners as rational, self-interested individuals. o they see cheating as a major problem. QUESTION 8 A Pareto-optimal outcome is the best possible outcome for a prisoner in prisoners' dilemma O True False QUESTION 9 Interventionist liberals are more concerned than orthodox liberals with international institutions O negative freedom o distributional issues o domestic-international interactionsConsider two people called Young and Old. Young and Old live together. Young can choose to party or not to party. Young values going to party at $10. The cost of the risk of getting Corona from going to the party is $1 for Young. However, the cost to Old of getting Corona from Young if he goes to the party is $20. a. Suppose there is no bargaining and that Young doesn't care about Old. What is Young's privately optimal action, Party or No Party? b. Given the answer to (a), does this maximize social surplus (Net Payoff of Young + Net Payoff of Old)? c. Suppose Young has a right to party (Old cannot forcibly prevent Young). Old and Young bargain over Young going to party. How much will Old have to offer Young to make him willing to not party?Compare and contrast one (1) of the following in 70 to 100 words . Be sure your writing shows that you understand the definitions of the two things you are comparing . a . Commoditization vs. Decommoditization