University presidents around the country have convinced the Congress to support an educational program that will...

University presidents around the country have convinced the Congress to support an educational program that will allow students to attend any college in the US they want for only $15,000 in annual tuition and living expenses. This program would generate $40,000 in extra after-tax earnings. The rest of society – i.e., taxpayers, pays costs of $24,000 in scholarship costs per student but receives only $10,000 in discounted added tax revenues.

Would this program pass the Hicks-Kaldor economic efficiency test?

Is this the right test to use?

Regardless of the answers to (a) and (b), is this a program that you would support? Why yes or no?

Expert Solution

Programme(a) Educational Program Cost = $15000

1)Programme (a) generate after the After-tax earnings = $40000.

After Tax Earning is the Net Profitability ,calculated as .

After Tax Earnings = Revenune - (all Expenses inclusive of allTaxes).

Programme (b) Eductaional Program cost for Rest of the Society = $24000 in scholarship Cost per student .

2)program (b) generated after the Discounted Added Tax Revenue =$10000

Econoimic Efficiency are Classified into two Types a) Productive Efficieny b)Allocative efficieny

Productive Efficiency is getting more output for the Units of Input is been Used

Marginal Product of Capital is equal Marginal product of labour divided by Marginal product of cost all the inputs to raise the capital

Allocative Efficiency is where both Program1 and Program 2 ,maximise their allocative efficiency.

Allocative Effiency is where both program can maximise the efficiency if any one of those program moves toward the other has an effect of the other program to lose its efficiency .

Pareto Efficiency is one allocative movement between the both programs does not make one program worse but that allocative movement can make the other better or much better

Kaldor Hick Efficiency is where the either programmes, one Programmes is so better than the other Program even though the other Program Incurred has incurred Loss or at it worse .Program which goes better can even compensate the Other Program Inefficieny.

Rahul Sunny answered 2 years ago

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University presidents around the country have convinced the Congress to support an educational program that will...

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