公共经济学ppt习题答案

Chapter 1

Exercise 1.6

What restricts the policies that a government can choose? Are there any arguments for imposing additional restrictions?

Solution 1.6

There are numerous issues that can be raised in answering this question.One response that may not be obvious is to introduce the role of information.Limited information makes some policies infeasible. For example, income from employment can be observed with a reasonable degree of accuracy. In contrast wealth is much harder to observe and measure. Therefore income is taxed in many countries whereas wealth is not (the exception to this are estate duties levied after death). The range of other issues that can be introduced include: the need to maintain budget balance; the need to maintain trade balance; avoidance of inflation; prevention of excessive emigration or immigration. Additional restrictions may also be needed to limit the incentives for evasion that are introduced or to ensure that corruption is not permitted to become endemic.

Exercise 1.7

“Physics is a simpler discipline than economics. This is because the objects

of its study are bound by physical laws.” Do you agree?

Solution 1.7

What distinguishes economic agents from physical entities is that the agents

make decisions. They observe their environment and make individual choices

about how to behave. Some choices may be predictable through the application

of rational choice theory. Other choices may be governed by tradition or custom,

or they may simply be random or ill-judged. In any case it is not possible to

predict the choice of an economic agent without understanding their preferences

and the constraints they perceive. Physical entities respond in predictable ways

to external stimuli — if we leave aside the fact that sub-atomic particles have

been represented successfully by probabilistic models. Economics may not be

harder but the freedom of its agents to make choices ensures it is more difficult

to make correct predictions about economic outcomes. Another crucial distinction

between physics and economics is verifiability of theoretical model using

an experiment. In a physical laboratory the behavior of the objects in the experiment

is not different from their behavior in the natural environment. In an

economic laboratory the individuals are aware of participating in an experiment

and, therefore, are likely to behave differently, i.e., make different choices and

decisions, trying to guess “what is the game behind the game”. This makes it

difficult to match the outcome of the experiment with the economic activity in

the real environment. Finally, in physics the parameters in the models almost

always can be measured, directly or indirectly, with a sufficiently high degree

of precision. In economics many parameters and variables cannot be measured

directly and often proxies are used instead. This makes prediction in economics

more difficult and less precise than in physics.

Exercise 1.13