4. Suppose that the State of Washington (that is, the median voter in

Washington) has the following preferences of Education E and other

goods G:

U(G;E) = lnG + (1 - a ) lnE

The price of education is PE; the price of other goods is 1; the stateâs

total budget is W.

(a) How many units of Education will Washington provide? 10

points.

1

(b) What fraction of the budget will be spent on Education - write

this as a function of PE and , and W 5 points.

(c) Illustrate this graphically. 5 points.

The Federal Government is concerned about the quality of education

in Washington, so they are considering a Grant program. First, they

are considering a Matching Grant, that will give the 1 dollar for each

dollar they spend on Education.

(a) What is the âeffectiveâ price of education under this program? 5

points.

(b) What is likely to happen to the level E thatWashington chooses?

Will there be an income effect, a substitution effect, or both? 5

points.

(c) Illustrate the new situation graphically. 5 points.

(d) Solve for the new amount of spending mathematically. How

much does E rise, and how much does state spending (prematch)

fall? 5 points.

The other possible Grant program is a Block Grant, equivalent is size

to the dollars transferred until the matching grant in the previous exercise.

(a) What is the âeffectiveâ price of education under this program?

Will there be an income effect, a substitution effect, or both? 5

points.

(b) Solve mathematically for the new level E that Washington will

choose. 5 points.

(c) Explain any difference between the level E you found for this

program, and the level you found for the Matching Grant. 5

points.

Which program would you recommend? 5 points.

 

 

The questions that are bolded and underlined are the ones that I need help with.

Thank you.

SuperTutor

(15)

Status NEW Posted 03 May 2017 07:05 AM My Price 10.00

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