27. Consider a government and two citizens. The government has to decide whether to create a public good, say a park, at cost Rs 100. The value of the park is Rs 30 to the citizen 1 and Rs 60 to citizen 2; each valuation is private information for the relevant citizen and not known to the government. The government asks the citizens to report their valuations, say rị and r2. It cannot verify the truthfulness of the reports. It decides to build the park if r1 + r2 > 100, in which case, citizen 1 will pay the tax 100 - r2 and citizen 2 will pay the tax 100 - r1. If the park is not built, then no taxes are imposed. The reported valuations will be A. rị < 30 and r2 > 60 B. r1 > 30 and r2 < 60 C. r1 = 60 and r2 = 30 D. rị = 30 and r2 60 28. In the context of the previous question, suppose the only change is that citizen 1's valuation rises to 50 and the same procedure is followed, then A. The park will be built and result in a government budget surplus of Rs 10 B. The park will be built and result in a government budget deficit of Rs 10 C. The park will be built and result in a government balanced budget D. The park will not be built

27. Consider a government and two citizens. The government has to decide whether to create a public good, say a park, at cost Rs 100. The value of the park is Rs 30 to the citizen 1 and Rs 60 to citizen 2; each valuation is private information for the relevant citizen and not known to the government. The government asks the citizens to report their valuations, say rị and r2. It cannot verify the truthfulness of the reports. It decides to build the park if r1 + r2 > 100, in which case, citizen 1 will pay the tax 100 - r2 and citizen 2 will pay the tax 100 - r1. If the park is not built, then no taxes are imposed. The reported valuations will be A. rị < 30 and r2 > 60 B. r1 > 30 and r2 < 60 C. r1 = 60 and r2 = 30 D. rị = 30 and r2 60 28. In the context of the previous question, suppose the only change is that citizen 1's valuation rises to 50 and the same procedure is followed, then A. The park will be built and result in a government budget surplus of Rs 10 B. The park will be built and result in a government budget deficit of Rs 10 C. The park will be built and result in a government balanced budget D. The park will not be built

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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