Question 1

Public finance economists should only concern themselves with positive economic analysis.

Accepted Answer

Public finance economists should concern themselves with both positive and normative economic analysis. Positive analysis deals with describing and explaining economic phenomena as they exist, while normative analysis involves making judgments about what outcomes should be achieved and what policies should be pursued to achieve those outcomes. Both types of analysis are important in informing policy decisions.

Question 2

Compare and contrast Pareto optimality and Pareto superiority and provide a brief discussion of the advantages of the Pareto criteria in assessing the public interest.

Accepted Answer

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Question 3

Cost-benefit analysis does not employ interpersonal utility calculations.

Accepted Answer

Cost-benefit analysis often involves comparing benefits and costs across different individuals or groups, which implicitly or explicitly requires considering interpersonal utility comparisons to make decisions about the allocation of resources or the implementation of policies.

Question 4

The goal of equity is fundamentally a positive issue.

Accepted Answer

Equity is fundamentally a normative issue, as it involves judgments about what is fair or just.

Question 5

When acting upon the potential compensation criterion,the winners must compensate the losers to the exchange.

Accepted Answer

The potential compensation criterion, also known as the Kaldor-Hicks efficiency criterion, suggests that an economic transaction is efficient if those who benefit could in theory compensate those who lose out, making everyone at least as well off as before. It does not require that compensation actually be paid.

Question 6

While limited in their practical applications,the real value of the Pareto criteria is in allowing the public interest to be judged without making interpersonal utility calculations.

Accepted Answer

The statement is true. The Pareto criteria allows for the evaluation of public interest without having to make subjective interpersonal utility calculations.

Question 7

What is cost-benefit analysis? Suppose that you were asked to do a cost benefit analysis of tearing down an elderly woman's ancestral home to provide space to expand a local high school.What difficulties might you encounter?

Accepted Answer

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Question 8

Briefly list and discuss in turn the three limitations of the Pareto criteria.

Accepted Answer

The answer of Briefly list and discuss in turn the...

Question 9

Draw a demand and supply curve for a competitive product,making sure to clearly label the axis.Give a brief explanation for why the resulting equilibrium is economically efficient.

Accepted Answer

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Question 10

Suppose that a particular policy would result in a $100 gain for Gwen but a $20 loss for Sabrina.Everyone else in the economy remains the same.Is this policy change in the public interest according to the potential compensation criterion? Explain and justify your answer.

Accepted Answer

The answer of Suppose that a particular policy would result...

Quiz 2: Principles for Analyzing Government