2. Three voters A B and C will decide by majority rule whether to pass bills on issues X and Y. Each of the two issues will be voted on separately. The change in net benefits (in dollars) that would result from the passage of each bill is as follows:
Issue
Voter X Y
A +6 -3
B -1 +4
C -2 -3
Which issues (if any) would pass if decided by majority rule? Is this the efficient outcome? And another question is which issues (if any) would pass if logrolling were allowed? Would logrolling improve efficiency? Would it result in the efficient outcome? (2 marks)
Suppose that it were legal for one voter to pay another voter to vote in a certain way. Would allowing such side payments improve efficiency in part b? Would it result in the efficient outcome? (1 mark)
What amount of side payments would take place if paying for votes were allowed? (1 mark)
3. Industries in the country of Technologia invest in new equipment that annually increases productivity of private workers by 3 percent. Government employees do not benefit from similar technical advances.
If wages in the private sector are set equal to the value of the marginal product how much will they rise yearly? (2 marks)
Government workers annually receive increases so that wages remain comparable to those in the private sector. What happens to the price of public services relative to privately produced goods? (2 marks)
If the same quantity of public services is produced each year what happens to the size of the government (measured by spending)? (2 marks)
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