Describe how a Clarke tax is designed and explain how it leads a person to correctly reveal his preferences for a public good.
What will be an ideal response?
When a public good is provided using a Clarke tax, a person will be charged the cost of the public good minus the value that others claim they place on it. The person is taxed only if his revealed preference for the public good exceeds the amount of the tax; otherwise, the public good will not be provided. If the person feels that the public good is worth less than the amount of his tax, then he does not want the public good to be provided. If he overstates his preferences in this situation, he may get taxed for a public good that he really doesn't want. On the other hand, if the person values the public good more than the tax he would have to pay, then he does want the public good to be provided. If he understates his preferences in this case, he may not get the public good that he truly values. In either case, by truthfully revealing his preference, he gets the outcome he prefers.
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Refer to Figure 22-1. Within a country, the impact of wars and revolutions and their subsequent destruction of capital is reflected in the per-worker production function in the figure above by a movement from
A) B to A. B) B to C. C) C to A. D) A to B.
During 2017, the rate of inflation was 2 percent. Daniel sold basketballs that year for $16. If Daniel continued to sell basketballs for the same price in 2018, how did the relative price of basketballs change?
a. –2 percent b. –1 percent c. 2 percent d. 1 percent