对外经济贸易大学财政学期末考试复习宝典

Instructor9

sManual

toaccompany

Public

Finance

SeventhEdition

SuggestedAnswersto

DiscussionQuestions

andSampleExams

byHarveyS.Rosen

March2004

©McGraw-Hill/Irwin2004

SuggestedAnswerstoDiscussionQuestions

Someofthequestionshavenosingle“correct“answer

-reasonablepeoplecangooffindifferentdirections.

Insuchcases,theanswersprovidedheresketchonly

afewpossibi1ities.

Chapter1

1.a.Putin'sstatementisconsistentwithan

organicconceptionofgovernment.

Individualsandtheirgoalsarelessimportant

thanthestate.

b.Rehnquistmakesaclearstatementofthe

mechanisticviewofthestate.

2.a.Apersonwithanorganicconceptionofthe

statemightreactfavorably,arguingthat

evenifanindividualownerisworseoff

becausehemustshowonlyFrenchmovies,the

nationisbetteroffbecauseitachievesmore

unity.

b.Alibertarianwouldcertainlyrejectthis

policyandthereasoningbehindit-thereis

no“nationalinterest“independentofthe

interestsofindividuals,andpeopleshould

havetherighttoruntheirlivesintheway

thattheyprefer-includingseeingwhatever

moviestheywant.

c.ASocialDemocratwouldtrytobalancethesetwo

aims,anditishardtopredicthowheorshe

wouldcomeout.

3.Mechanisticviewofgovernmentsaysthatthe

governmentisacontrivancecreatedbyindividuals

tobetterachievetheirindividualgoals.Within

themechanistictradition,peoplecoulddisagree

ontheobesitytax.Libertarianswouldsaythat

peoplecandecidewhatisbestforthemselves.

Theydonotneedproddingfromthegovernment.In

contrast,socialdemocratsmightbelievethat

peoplearetooshortsightedtoknowwhatisgood

forthem,sothatgovernment-providedinducements

areappropriate.

4.a.Ifthesizeofgovernmentismeasuredbydirect

expenditures,themandatedoesnotdirectly

increaseit.Costsofcompliance,however,

maybehighandwouldappearasanincreasein

a"regulatorybudget.

b.Ifshardtosaywhetherthisrepresentsan

increaseordecreaseinthesizeofgovernment.

OnepossibilityisthatGDPstayedthesame,

andgovernmentpurchasesofgoodsandservices

fell.Anotheristhatgovernmentpurchases

ofgoodsandservicesgrew,butataslower

ratethantheGDP.Onemustalsoconsider

coincidentfederalcreditandregulatory

activitiesandstateandlocalbudgets.

c.Thefederalbudgetwoulddecreaseif

grants-in-aidwerereduced.However,if

stateandlocalgovernmentsoffsetthisby

increasingtaxes,thesizeofthegovernment

sectorasawholewouldnotgodownasmuchas

onewouldhaveguessed.

5.Theinflationerodestherealvalueofthedebtby

0.032x£332bi11ionor£10.6billion.Thisfigure

shouldbeincludedasrevenuetothegovernment.

6.Thefederalgovernmentgrewby$450bi1lion.

However,becausethepricelevelwentupby16

percent,intermsof2001dollarsthisamountedto

adecreaseof$224billion(=$1.86tri1lion-

1.16x$l.41trillion).AsaproportionofGDP,

federalspendingin1993was21.2percentandin

2001itwas18.2percent.Hence,bybothmeasures,

thesizeofgovernmentfell.Togetamore

completeanswer,onewouldwantdataonthe

population(tocomputerealspendingpercapita).

Also,itwouldbeusefultoaddinexpendituresby

stateandlocalgovernments,toseeifthetotal

sizeofgovernmentfell.Also,althoughitwould

behardertomeasure,onewouldwanttotrytogain

somesenseofhowtheregulatoryburdenonthe

economygrewduringthistimeperiod.

Chapter2

1.Therealitythatastronomersaretryingto

understandisnotinfluencedbyany“policies”that

astronomersmightimplement.Moreover,the

parameterswithwhichastronomersmustdealare

constantovertime,whiletheparametersin

economicscanchangeacrosstimeandspace.

2.Achangeinthemarginaltaxratechangesthe

individuaPsnetwage.Thisgeneratesbothan

incomeeffectandasubstitutioneffect.Aslong

asleisureisanormalgood,theseeffectsworkin

oppositedirections.Hence,onecannottella

prioriwhetherlaborsupplyincreasesordecreases.

Onecouldasktaxpayerstodescribehowtheywould

changetheirbehaviorundertheproposal,butit

ishardtoimaginethatthiswouldyielduseful

results.Inasocialexperiment,acontrolgroup

wouldconfrontthestatusquo,andanexperimental

groupwouldfacethenewtaxregime.Thisis

clearlyinfeasible.Econometricinvestigation

oflaborsupplyseemsthebestapproach,

particularlyifdataassociatedwithpastchanges

intaxratescanbebroughttobearontheproblem.

3.Generally,economicoutcomesareaffectedbya

numberofvariables.Economistscannotperform

controlledrandomizeexperiments,whichmakesit

difficulttoassesshowanysinglevariable

affectsagivenoutcome.Similarly,brain

impairmentmaybeduetoanumberoffactors.

Ecstasyusersclearlyarenotarandomsampleof

thepopulation.Hence,onedoesnotknowwhether

brainimpairmentisduetoEcstasyorsomevariable

thatiscorrelatedwithEcstasyuse.

4.Thetextpointsoutthepitfallsofsocial

experiments:theproblemofobtainingarandom

sampleandtheproblemsofextendingresults

beyondthescopeoftheexperiment.Participants

inthestudyhadfoundittotheiradvantagetobe

apartoftheexperiment,whichmayhaveresulted

inaself-selectedpopulationunrepresentativeof

thewidergroupofhealthcareconsumers.Further,

physicians5"standardpractices^^arelargely

determinedbythecircumstancesofthepopulation

asawhole,nottherelativelysmallexperimental

group.

5.Thereappearstobeaweakrelationshipbetween

deficitsandinterestrates.Indeed,itmight

appearthatwhenlargedeficitsleadtolower

interestrates.However,onewouldneedmoredata

toinvestigatethisquestion.Onewouldwantto

lookatdeficitsrelativetoGDP.Onewouldlike

tocontrolforotherfactorsthatcanaffect

interestrates,suchasmonetarypolicyandthe

levelofeconomicactivity.

Chapter3

1.a.Inthisparticularinsurancemarket,onewould

notexpectasymmetrieinformationtobemuch

ofaproblem-theprobabi1ityofafloodis

commonknowledge.Moralhazardcouldbean

issue-peoplearemorelikelytobuildnear

abeachiftheyhavefloodinsurance.Still,

onewouldexpectthemarketforflood

insurancetooperatefairlyefficiently.

b.Thereissubstantialasymmetricinformationin

themarketsformedicalinsuranceand

malpracticeinsurance.Forefficient

consumption,thepricemustbeequaltothe

marginalcost,andtheeffectofinsurancemay

betoreducetheperceivedpriceofmedical

careconsumption.Thatwouldleadto

consumptionabovetheefficientlevel.

Becauseoftherolesofregulation,insurance,

andtheshiftingofcostsfromtheuninsured

totheinsured,thereislittlereasonto

expectthemarkettobeefficient.

c.Inthestockmarketthereisgoodinformation,

andthousandsofbuyersandsellers.We

expect,ingeneral,efficientoutcomes.

d.Fromanationalstandpoint,thereisagooddeal

ofcompetitionandinformation.Theoutcome

wi11likelybeefficient.However,some

firmsmightexercisesomemarketpower.

e.Studentloanmarketsmaybeimperfectbecause

ofasymmetricinformation-studentknows

betterthanlenderwhetherhewi11workhard

enoughtorepaytheloan.

f.Carinsurancemarketsmaybeimperfectbecause

ofasymmetricinformation.Driverswhoknow

theyareparticularlyaccidentpronewi11be

particularly1ikelytowantcarinsurance(or

policieswithgreatercoverage).

2.Pointarepresentsanequalallocationofwater,

butitisnotefficientbecausethereisno

tangency.Pointbisanefficientallocation(but

nottheonlyone).

AD:1)Thedashedlineispositionedatthehalfway

pointonthehorizontalaxis.

2)Pointbisatangency

3.Themarginalrateoftransformationbetweenforeignanddomesticmoves

dependsontherationoftheirpricesbeforetaxesandsubsidies.

Becauseofthewedgecreatedbythetaxesandsubsidies,thetwoprice

ratiosaredifferent.Therefore,themarginalrateofsubstitutionand

marginalrateoftransformationarenotequal,andtheallocationof

resourcesisinefficient.4.a.Socialindifferencecurvesarestraight

1ineswithslopeof-1.Asfarassocietyisconcerned,the“util”to

Augustusisequivalenttothe"util"toLivia.

b.Socialindifferencecurvesarestraightlines

withslopeof-2.Thisreflectsthefact

thatsocietyvaluesa"util”toAugustustwice

asmuchasa"util"toLivia.

A

UL

UA

5.Itishardtoseeanyredistributiveorefficiency

gaintoaprogramoffreeconcerts.Ifyoubelieve

thatyoucan“improve“people'stastesbyexposing

themtoclassicalmusic,thentheremaybeamerit

goodjustification.

6.a.11ishardtoseeamarketfailurehere.The

CoastGuardcansetarescuefeeequaltothe

marginalcostofarescue.

b.Welfareeconomicsprovideslittlebasisfor

suchasubsidy.

c.Asymmetricinformationisprobablynota

probleminamarketlikethis,soitishard

toseewhytheprivateinsurancemarketisnot

allowedtofunction.

d.11ishardtoimagineabasisinwelfare

economicsforthisregulation.

e.Thisisnotanefficientpolicy.Ifthe

problemisthattoomuchwaterisbeing

consumed,thentheansweristoincreasethe

priceofwater.Onthatbasis,peoplecan

decidewhetherornottheywanttoiletsthat

requirelesswater.

f.[needanswer]

7.Thesetofpossibleallocationsisastraightline

100unitslong.EveryallocationisPareto

efficient,becausetheonlywaytomakeoneperson

betteroffistomakeanotherpersonworseoff.

8.Itwouldseemthatmarketsareagoodsocialorder

bythiscriterion.Everyoneactsselfishly(i.e.,

maximizeshisownutility)buttheresultisa

Paretoefficientallocationofresources.This

assumes,ofcourse,thatalltheconditionsforthe

FirstFundamentalTheoremaremet.

9.BecausetheMRSdoesnotequaltheMRT,the

allocationisnotParetoefficient.TomoveMRS

inthedirectionofequalingMRT,thereshouldbe

morecrumpetsandlesstea.

10.a.False.

b.True.

c.True.

d.False.

Chapter4

1.a.Wildernessareaisanimpurepublicgood-at

somepoint,consumptionbecomesnonrival.

b.Waterisrivalinconsumptionandexcludable.

Hence,itisnotapublicgood.

c.Medicalschooleducationisaprivategood.

d.Televisionsignalsarenonrivalin

competition.

e.AnInternetsiteisnonriva1inconsumption

(althoughitisexcludable).

2.WeassumethatCheetah'sutilitydoesnotenterthe

socialwelfarefunction;henceherallocationof

laborsupplyacrossactivitiesdoesnotmatter.

a.Thepublicgoodispatrol;theprivategoodis

fruit.

b.RecallthatefficiencyrequiresMRSTARZAN+MRSJANE

=MRT.MRSTARZA=MRSJANE=2.ButMRT=3.Therefore

MRS"*"+MRS"">MRT.Toachieveanefficient

allocation,Cheetahshouldpatrolmore.

3.Apurepublicgoodisnonrivalinconsumption,thus

itisnecessarytodeterminewhetherornotthis

isthecasewiththehighway.Thatis,ifthe

additionalcostofanotherperson“consuming”the

highwayiszero,thenitisapublicgood.So,as

longasthehighwayisnotcongested,thenitcan

beconsideredtobeapublicgood.However,

addinganothermotoristtoanalreadycongested

roadwaycancausetrafficjamsthatcostmotorists

moretimetotravelthehighway,whichwould

representnon-zerocoststohavinganadditional

personusethehighway.Therefore,the

congestionoftheroadwaydetermineswhetheror

notwecoulddesignateitasapublicgood.

Todeterminewhetherornottheprivatizationof

thehighwayisasensibleidea,itisnecessaryto

considertheadvantagesanddisadvantagesofsuch

anaction.First,ifthemarketstructureissuch

thatprivatizingthehighwaywouldresultina

monopolistincontrolofthehighway,thenthis

wouldbeinefficient.Also,itwouldbedifficult

forthegovernmenttowriteacompletecontractfor

maintainingthehighway,whichwouldalsocause

inefficienciesthatwouldresultfromthe

privatizationoftheroad.However,ifthe

governmentownsthehighway,itmightnothavethe

appropriateincentivestomaintainitproperly.

Insuchacase,evenownershipbyaprivate

monopolistmightbeasensiblesolution.

4.Thebenefitsofmaintainingtheincomesofthepoor

accruetosocietyasawhole,sowelfareisapublic

good.Itishardtosaywhetherornotitshould

bepubliclyorprivatelyadministered.Private

administrationmightbelesscostly.Ontheother

hand,privateadministratorsmighthavean

incentivetodeprivedeservingindividualsof

benefitsinordertocutcosts.Itwouldbe

difficulttowriteacontracttopreventthiskind

ofbehavior,becauseonecannotspecifyinadvance

everyconceivablesetofcircumstancesunderwhich

welfareshouldbegranted.

5.Alowcostisnotenough.Weareconcernedwhether

theprisonersaretreateddecently,whether

securityisgood,andsoon.

6.Theexperimentalresultssuggestthatthereis

somefreeriding,butsomepeopledocontribute.

ThafswhathappenedinManchester.Also,the

experimentsuggestedthatwhenthegamewas

repeated,peopleweremorelikelytofreeride.

Thisalsohappened——thesecondyear,

participationwasless.

7.Thereisnocompel1ingreasonformuseumstoberun

bythegovernment.IntheUnitedStates,many

greatmuseumsarerunbyprivately(notforprofit),

andtheyseemtodoquitewell.

8.InFigure4.5,drawalinestartingatpointxthat

runstothesoutheastandisparalleltoAB.As

longaseducationisanormalgood,morewi11be

consumed.However,iftheschoolingisfinanced

bya(lump-sum)tax,thenthebudgetconstraint

shiftsinbyanamountthatdependsonthe

household'sshareofthetaxburden.

9.Sumofthemarginalbenefitsequalsmarginalcostat

67degrees.

10.

Chapter5

1.Classicaleconomicsexplicitlyrequiresthatall

costsandbenefitsbetakenintoaccountwhen

assessingthedesirabi1ityofagivensetof

resources,soGore'sstatementisfalse.The

notionthatrescuingtheenvironmentshouldbe”the

centralorganizingprincipleforcivi1ization^^

providesnopracticalbasisfordecidingwhatto

doaboutautomobileemissions(oranyother

environmentalproblem),becauseitprovidesno

frameworkforevaluatingthetradeoffsthat

inevitablymustbemade.

2.

permonth

a.P.

b.SeescheduleMSBP.

c.P*.Grantaunitsubsidyof$bperparty.

d.Totalsubsidy=abed."Society“comesout

aheadbyghc,assumingthesubsidycanbe

raisedwithoutanyefficiencycosts.

(Cassanova'sfriendsgaingchd;Closeschd

butgainsabed,whichisasubsidycostto

government.)

3.a.Ifyouknowwhowascooking,theexternality

iseasytoidentify,anddependingonhowmany

studentsareinvolved,thecostsof

negotiationshouldbefairlysmall.

b.Itseemsfeasibletoestablishpropertyrights

totheriverandmakepeoplepayforthefish.

c.Therearetoomanyfarmersandtoomany

city-dwellersforaprivatenegotiation.

d.Toomanypeopleareinvolvedforprivate

negotiation.

4.a.Thepriceofgasolinedoesnottakeinto

accounttheincreasedriskstoeveryonefrom

moredependenceonforeignoil.

b.Estimatethemarginaldamageassociatedwith

therisk.

c.Thesupplyofvouchersisverticalat140

million.Thedemandcurveisdownward

sloping.Foreverygallonofgasoline,you

eitherhavetobuyavoucheroruseuponeof

ourown.Ineithercase,thisincreasesthe

opportunitycostby75cents.

5.Thetaxesaretoolow.

6.Byestablishingamarketforairpollutionrights,

theBoardofTradehasappliedtheCoaseTheorem.

Thepotentialefficiencyoftheoutcomemaybe

laudable,butthedistributionalimpactmaybe

unpalatabletosome.

7.a.4.

b.2.

c.Profitsgoupby17.

d.[needanswer]

8.PrivateMarginalBenefit=10-X

PrivateMarginalCost=$5

ExternalCost=$2

Withoutgovernmentintervention,PMB=PMC;X=

5units

SocialefficiencyimpliesPMB=SocialMarginal

Costs=$5+$2=$7;X=3units.

Gaintosocietyistheareaofthetrianglewhose

baseisthedistancebetweentheefficientand

actualoutputlevels,andwhoseheightisthe

differencebetweenprivateandsocialmarginal

cost.Hence,theefficiencygainis%(5-3)(7

-5)=2.

APigouviantaxaddstotheprivatemarginalcost

theamountoftheexternalcostatthesocially

optimallevelofproduction.Hereasimpletaxof

$2perunitwi11leadtoefficientproduction.

Thistaxwouldraise($2)(3units)=$6inrevenue.

9.Intheabsenceofpersuasiveevidenceonpositive

externalitiesforhighereducation,thereisno

reasonforthegovernmenttoprovidefreetuition.

True,taxesonwagesmaydistorteducation

decisions(seeChapter16),butvirtuallyall

taxesdistortsomedecisionmaking,anditis

unlikelythatitisoptimaltosubsidizetuition

at100percent.

10.a.P=5.

b.Yes,itwouldbuyapermission.Thegainin

efficiencywouldbe3.

Chapter6

1.a.Below,thepreferencesfor1and2aredrawn.

Sameprocedureisusedfor3,4and5.

Ptnon1

Ptrton2

ABCD

b.Cwinsineverypairwisevote.Thus,thereis

astablemajorityoutcome,despitethefactthat

persons1,2,and3havedouble-peaked

preferences.Thisdemonstratesthatalthough

multi-peakedpreferencesmayleadtovoting

inconsistencies,thisisnotnecessarilythe

case.

2.Thisepisodeisconsistentwiththelogrolling

model.Thesenatorsfromtheaffectedstatesmake

adealtoadvantagetheirconstituentsatthe

expenseofotherregions.

3.a.Threepercentayear.

b.Assumingthatthepublicsectorusesonlylabor

asaninput,thepriceofthepublicgood

increasesby3percentayear.

c.Thesizeofgovernmentincreases.Forfurther

discussionofthisphenomenonseethepaperby

W.J.Baumol,''MacroeconomicsofUnbalanced

Growth:TheAnatomyofUrbanCrises,

AmericanEconomicReview,1967.

4.Yes,itisconsistent,becausethetheorysaysthat

whenunanimityisrequired,nodecisionsare

1ikelytobemade.Amajoritysystemmightbemore

suitable,althoughitissubjecttocyclingand

otherproblems.

5.Ifthesefiguresaretrue,thenthepredictionsof

themedianvotertheoryarenotaccurate-thatis,

majorityvotingwi11notreflectthepreferences

ofthemedianvoter.Thereasonforthisis

becauseofthedifferentturnoutratesfor

individualsindifferentincomecategories.

Considerthissimpleexample:supposethatvoters

havesingle-peakedpreferences,andtheyare

tryingtodeterminehowmuchshouldbespenton

nationaldefense.Theirpreferencesarelisted

asfollows:

Andrew:$500Bob:$700Charlie:$850

Allison:$600Bill:$750Cathy:$900

Anne:$650Beth:$800Cheryl:$1,000

Themedianvotertheorempredictsthatamajority

votewi11resultin5750beingspentondefense

(whichisreflectiveofBi1Pspreferences,since

heisthemedianvoter).However,ifthereare

differentparticipationratesbydifferentgroups

(inthiscase,thegroupsaredeterminedbythe

firstletterintheperson'sname),thenthe

preferencesofthemedianvoter(Bill)areno

longerreflectedinthemajorityvote.Suppose

thatAndrewandAnnedon,tvote-thenamajority

votewi11resultin$800ofdefensespending.

6.Whenthereisavoteoverthreeoptions,thereis

thechancethatapotentialmajorityvoteissplit

betweentworelativelypreferredoptions,andthe

thirdoptionwins.Thewinningoptionmayhave

beenvoteddownifithadbeenatwo-wayvotewith

eitheroftheotheroptions.Further,if

preferencesarenotsingle-peaked,cyclingand

inconsistentpublicdecisionsmayemerge.

7.Wewouldexpectaccountingtrickstomaskthesize

ofthedeficits,andifthatdidn'twork,wewould

expectthedeficitrulestobeignored.Thisis

apparentlywhatishappening.WhenGermany

exceededthedeficittarget,nomovesweretaken

tolevytherequiredfines.

8.Sincerents,bydefinition,arethereturnsabove

anormalreturn,thenwhenthe1icensesareputon

themarket,theirpricewi11bethevalueofthe

rents.Hence,theowner,whoeverheorsheisonly

makinganormalreturn.Putanotherway,the

licenseisanassetthatearnsanormalrateof

return.Ifthelicensesystemwereeliminated,

efficiencywouldbeenhanced.Butitwould,in

effect,confiscatethevalueofthisasset.Itis

noteclearthatthisisfair.Onecouldalsoargue

thatwhensomeonebuysthisasset,itiswiththe

understandingthatthereissomeprobabi1itythat

itsvaluewi11bereducedbyeliminationofthe

program;hence,itisnotunfairtodoso.

9.a.P=2,Q=80.

b.P=6,Q=40.

c.Rents=(6-2)x40=160.

d.Maximumcontributionisthesizeoftherents,

160.Deadweightlossis.5x40x4=80.

e.Deadweightlosscouldgoashighasthesumof

theconventionaldeadweightlossandtherents:

160+80=240.

10.InFigure6.4,theVcurveshiftsup.This

increasestheactualnumberofinspectorshired.

11is1ikelythattheshiftingalsoincreasesthe

slopeofVateverylevelofbureaucraticoutput,

whichwi11leadtotheefficientoutputincreasing

aswell.

11.Medianvoterrule.

Chapter7

1.Uti1itarianismsuggeststhatsocialwelfareisa

functionofindividuals'utilities.Whetheror

notthericharevulgarisirrelevant,sothispart

ofthestatementisinconsistentwith

uti1itarianism.Ontheotherhand,Stein's

assertionthatinequalityperseisunimportantis

inconsistentwithuti1itarianism.

2.a.TomaximizeW,setmarginaluti1itiesequal;

theconstraintisIs+Ic=100.

So,

400-2IS=400-6IC.

substitutingIt=100-Isgivesus2IS=6(100-

Is).

Therefore,Is=75,Ic=25.

b.IfonlyCharitymatters,thengivemoneyto

CharitytillMUC=0(unlessallthemoneyin

theeconomyisexhaustedfirst).

So,

400-6Ic=0;hence,Ic=66.67

GivinganymoremoneytoCharitycausesher

marginalutilitytobecomenegative,whichis

notoptimal.Notethatwedon'tcareifthe

remainingmoney($33.33)isgiventoSimonor

not.

IfonlySimonmatters,then,proceedingas

above,MUS.0ifIs=100;hence,givingallthe

moneytoSimonisoptimal.(Infact,wewould

liketogivehimupto$200.)

c.MUS=MUeforal1levelsofincome.Hence,

societyisindifferentamongall

distributionsofincome.

3.Themainconceptualproblemwiththepovertygap

isthatitdoesn'taccountfortheincomeeffect

onlaborforceparticipationrates.Thepoverty

gapiscalculatedassumingthatlaborincomewould

remainunchangedevenaftertheincomewas

transferredtothepoorpopulation,buteconomic

theorypredictsthatthiswi11notbeso.Infact,

ifthepoorhouseholdweregivenenoughincometo

bringitoutofpoverty,wewouldbelievethatthe

householdwouldworklessasaresultofreceiving

thistransfer.Thiscomplicatestheanalysis,of

course,becauseoncethehouseholdworksless,

thenitwi11generatelesslaborincome,thus

loweringitsoverallincome.Thismeansthatthe

povertygapactuallyunderstatestheamountof

moneynecessarytoalleviatethepovertyinthe

UnitedStates.

4.Adaycarecenterisanexampleofanin-kind

compensation.Thefigurebelowissimilarto

figure8.2inthetext.Theoriginalbudget1ine

isGiHiIftheemployeereceived$5,000cash,the

budget1inemovestoG2H2.Anemployeewhouses

thedaycarecentermaynotbe$5,000betteroff.

TheemployeeconsumesatpointA,butwouldbe

betteroffatpointB,whichrepresents

consumptionafteracashtransferof$5,000.

Hoursofdaycare

5.a.Thiswouldincreasetheincomesofthe

providersofcomputerequipment,andth