Question

QUESTION 3

With the aid of a diagram, discuss market equilibrium for a public good in a hypothetical economy with two individuals who consume that public good assuming those individuals reveal their preference for that public good.

QUESTION 4

Discuss Nozick’s three “principles of justice” for a just distribution of income. In your discussion, include other Pareto criteria for policies aimed at redistributing income from rich to poor.

QUESTION 5

“The most common social choice rule is the “ordinary” majority rule. Every individual is given one vote and the issue or policy receiving the most votes wins the day. Under a direct democratic dispensation where each voter reveals his or her preferences directly via a referendum, the majority – voting rule requires that a proposal receives “50% plus one vote” support before it can be imposed on the community. If South Africa had a direct democracy and the public were asked in a referendum to vote for or against a increase in the rate of value added tax (VAT), the rate would not be increased if 4 000 001 out of a total of 8 million voted against such an increase.”

5.1 Briefly discuss the impossibility theorem as well as the ethical conditions that it advocates are the short-comings of the majority voting rule.

5.2 Discuss the shortcomings of majority voting in terms of the intensity of voters` preferences. QUESTION 6 Government subsidies are often used to intervene in a market to offset the effects of market failure or in the pursuit of other policy objectives. With the aid of a diagram, discuss the welfare effects of a subsidy

Answer 1

ANSWER: Generally public goods are the non rival and non excludable in nature for instance public parks, street light, breathing air and so on.. There is no individual preference in the consumption of the public goods.Individual can easily participate in the public good consumption. The demand curve reveals the preference of both the customers towards the public good and the supply that is determined by the authority. So there is a limited choice to reveal their preference. Therefore with the given availability of the choices both the consumers reveal their preference. And also the budget line shows the total income of both the consumers. They will distribute the given budget to get higher level of satisfaction through consuming the public goods. The optimal quantity of the public good equates the marginal benefit and the marginal cost. The market demand for public goods shows the eagerness to pay for the good by the people or society.