Chapter10Solutions

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1、SolutionsandActivitiestoCHAPTER10STATEANDLOCALGOVERNMENTEXPENDITURESQuestionsandProblems1.The(identical)citizensofBoomtownhave$2milliontospendeitheronparkmainte-nanceoronprivategoods.Eachunitofparkmaintenancecosts$10,000.a.GraphBoomtown’sbudgetconstraintan

2、ddrawinarepresentativeindifferencecurveofyourchoosing.HowmanyunitsofparkmaintenancewillBoomtownpur-chasewiththeindifferencecurveyouhavedrawn?IftheBoomtownersspenttheirentire$2milliononparkmaintenance,theycouldpurchase200unitsofthatpublicgood,asillustratedi

3、ntheaccompanyingfigure.ParkMaintenance(units)2001000$1million$2millionPrivateGoodsThetangencyoftheindifferencecurvetothebudgetconstraintinthisexampleisatapproximately100unitsofparkmaintenanceand1millionunits(at$1perunit)ofpri-vategoods.b.Nowsupposethatthec

4、entralgovernmentpurchasesoneunitofparkmaintenanceforeachthreeunitsthatBoomtownpurchases.Drawthenewbudgetconstraintandanewrepresentativeindifferencecurve.Nowhowmanyunitsofparkmainte-nancewillBoomtownpurchase?Howhasthatchangedfromaandwhy?Foreachthreeunitsofp

5、arkmaintenanceBoomtownerspurchasethemselves,theyacquireatotaloffourunits;therefore,thebudgetconstraintpivotstoanewaxisinter-cept:from200to267(200×1.3333).Thismakesthembetteroff,andsotheincomeef-fectinducesmoreconsumptionofbothgoods.Inaddition,thegrantmakes

6、parkmaintenancecheaperrelativetoprivategoods(comparedwiththepre-grantamount),andthesubstitutioneffectcausestheresidentstopurchasemoreparkmaintenance.(Theexactamountpurchasedwilldependonwhereyoudrewyourindifferencecurve.)Copyright©WorthPublishers1JonathanGr

7、uber/FinanceandPublicPolicyCHAPTER10/StateandLocalGovernmentExpenditures-2-ParkMaintenance(units)2672001000$1million$2millionPrivateGoods2.WhydoestheTieboutmodelsolvetheproblemswithpreferencerevelationthatarepresentwithLindahlpricing?TheTieboutmodelassumes

8、thateveryoneinaparticularjurisdictionhasthesamepref-erences,soLindahlpricesareequalforallresidents.Sinceeveryonepaysexactlythesametax,noindividualhasanincentivetounderstatehisorhervaluationofagood:areductioni