1.  Use the information in the chart below to answer a - e:

 

VOTER	MWTP for Paved Road by the Government	MWTP for New Public Park
Bill	$200	$1500
George	$100	$100
Sarah	$1500	$200

 

MWTP = Marginal Willingness To Pay (the value they place on the project).

 

 

Assume each project cost $1500.  Each person pays a per capita share of the project of $500.  Also assume each project does not depend upon the other.

 

 

a.  Using standard welfare analysis (costs vs. benefits) would it be "efficient" to do both projects?  Explain.  (4 pts.)

 

b.  Explain why majority voting would defeat both projects - be specific in your answer (with numbers, etc.).  (4 pts.)

 

c.  If vote trading between voters took place - explain what would happen (which voters would have an incentive to vote trade, for example).  Make sure you explain who is vote trading and why and if the projects would be approved or not.  (4 pts.)

 

d.  Is your result in "c" efficient?  Explain?  (2 pts.)

 

e.  Now suppose that your result in "c" took place, but George's MWTP for each project was $400 (everything else held constant).  Is your result still efficient?  Explain.  (4 pts.)

 

 

 

2. Using the median voter model -- graph the full electorate when there is political consensus.  Now explain in words what the model predicts politicians will do in this circumstance and why? (6 pts.)

 

3.  What is logrolling?  Explain why the results of logrolling are typically considered to be "inefficient" because of its relationship to special interest groups. (6 pts.)