Prof. Bryan Caplan

Econ 410


HW#4  (Please TYPE all answers).


Cooter, Questions 1 and 2, pp.217-218.


Additional Questions


1.  Suppose that the "status quo" level of spending is not $0, but $1 M.  The approval of a lower house (L) and an upper house (H) is required to pass new legislation.  In 2-3 sentences, explain why this could be diagramed in the following way:




$0                  $L1M                $L                     $U1M                   $U                $1M


2.  How should you diagram the Pareto set and the bargain set on the above diagram?


3.  Suppose there were a Supreme Court that wanted to make spending as high as possible.  What is the highest level of spending on the above diagram they could impose by "creative reinterpretation"?


4.  Name a specific example of an unpopular policy that exists because of special interest activity.  How has this special interest managed to get its way? (2-3 sentences)


5.  Give an example of (a) a policy with concentrated benefits and diffuse costs; (b) a policy with concentrated costs and diffuse benefits.  Explain. (2-3 sentences)


6.  Suppose the government gives one firm the sole right to make cars.  This firm is able to charge a monopoly price, earning $10 billion in monopoly profits per year.  Carefully explain why - due to rent-seeking - even the monopoly producer of cars may be no better off as a result of government intervention in the car industry. (3-4 sentences)


7.  Which has better (or less bad) effects on political competition: spending limits or term limits?  Explain your answer using economic arguments. (3-4 sentences)


8.  List three services the federal government provides and three services provided by the state of Virginia.  How many are public goods at all?  Which are closer to being pure public goods, and which are closer to being local public goods?  Does Virginia actually focus more on local public goods than the federal government does?  (2-3 sentences)


9.  Milton Friedman famously proposed a "voucher" system to replace public education.  According to the Tiebout model of local government behavior, would there be significant benefits of this program?  How would this change if Caplan's critique of the Tiebout model (and non-profit competition generally) is correct? (3-4 sentences)


10.  Using economic arguments, comment on the following: "Due to the 'race to the bottom,' it is more efficient for the federal government, rather than the states, to control welfare policy." (3-4 sentences)