Question

1. When should the government intervene in society? Once we have chosen the path of intervention what options/factors need to be considered? How have opinions evolved over time? How might interventions differ between various levels of government (local/state/federal)?

2. People often call America the “Land of the Free”. Describe, with the theoretical tools we have discussed, how our market-based system contributes to that moniker. People have also contended that America is a country where some are systematically disadvantaged. Why might those with lower incomes feel this way based on what you’ve seen in chapter 2? If we adopted a communal based approach to the distribution of goods how might that solve some problems and bring about new challenges?

3. You work as an economic advisor for a mayor of a town that is working to better conditions for its citizens. The mayor points to a city nearby that has higher per capita income, better property values, and a flourishing school district. The mayor concludes that to bring your city up to their level he should increase the minimum wage so that your city’s per capita income rises, and your town can also enjoy the benefits the nearby town has. Confute or confirm the mayor’s suggestion. Through what ways might you be able to prove the veracity of your claims?

4. How might large and growing federal deficits affect future economic growth? If foreign investors lose confidence in America’s ability to repay its debt how might this outlook change? How might different rates of population growth affect your analysis? How is a government’s choice to take on debt like a student’s choice to take out student loans? How do they differ?

5. A local CAFO has a marginal production cost of MC = 50 + 30Q. This firm generates a negative marginal external cost on the residents of Bowling Green of 8Q. What is the private marginal cost associated with the 9th unit produced? What is the marginal cost to society when the 9thunit is produced? Design a marginal benefit function for society (Bowling Green). Find the point at which society would best be served given the costs and benefits you’ve described. If the CAFO was only concerned with its profits and not with the welfare of society overall what would happen?

6. Caffeine is commonly thought to be addictive. We see a prevalence of purveyors of coffee covering campus and Bowling Green at large. A local concerned citizen runs for city council on a platform of limiting the sale of coffee and adding taxes upon it. What economic arguments can be made to rationalize such a stance? At the League of Women Voters Candidates Forum a representative of Mothers Against Coffee Consumption (MACoCo) asks you, a city council member, to support the stance of the concerned citizen candidate. She states that alcohol and tobacco are already restricted and taxed in the city. How do you redress her statement? Does age play a factor in your decision making?

Answer 1

1.

Government intervention is necessary to redistribute income in the society.

Diminishing marginal returns to income.

Maximising social welfare is one of the most common and best understood reason for government intervention.

Factors to be considered are as follows :

• Ensure that path aligns with your organisational strategy
• Conduct an organisational path assessment.
• Assess your resources for future needs.

Level of intervention differs in different levels of government because

In local government , it has very limited powers and can only intervene in few matters relating to that local area or district

In state government powers are a little more than local government, so intervention of government increases but at a state level

In federal government, whole country in under the government, intervention is highest at this level of government.

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