Xacc/280 Week 6 Knowledge Check

1. Collective decision making, such as determining the level of public goods, differs from standard decision making within a household in two important ways. First, there is a problem of eliciting preferences. If the amount that individuals have to pay depends on their statements, they may tend to understate their true preferences. If the amount that individuals have to pay does not depend at all on their statements, they may tend to overstate their true preferences. Second, there is a problem of resolving differences in preferences: How much should be provided if different individuals desire that the government should, for instance, spend different levels on providing public goods?

2. Majority voting is the simplest way by which such differences are resolved. Unfortunately, a majority voting

The majority voting equilibrium exists if preferences are single-peaked.

5. Preferences for a single public good will usually be single-peaked. Preferences will not be single-peaked if: a. There is more than one public good, and the vote is taken over packages, rather than over a single good at a time. b. Voting is over a publicly provided private good, for which there exists a private alternative, such as education. c. Voting is over distributional questions, such as the structure of the income tax schedule.

6. The majority voting equilibrium, when it exists, reflects the preferences of the median voter.

7. In a two-party system, there will be a convergence of positions of the two parties toward that of the median voter.

8. The majority voting equilibrium does not, in general, result in an efficient supply of public goods; there may be either an undersupply of an oversupply.

9. The Lindahl equilibrium is the level of public goods provision in which the sum of the tax prices equals the marginal cost of production. Although the Lindahl equilibrium is Pareto efficient, there is no incentive for individuals to tell the truth concerning their