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ECON3000

Practice Questions 5

Question 1

In a study about endangered species protection, Americans stated that they were willing to  pay $70 billion to protect all endangered species. They also stated that they were willing to pay $15 billion to protect a single species. Which problem with Lindahl pricing does this    demonstrate? Explain.

Question 2

The preference revelation problem associated with Lindahl pricing becomes more severe as the number of people in society increases. Why do you think this is true?

Question 3

Major League Baseball uses what is known as a 5–3– 1 system to vote for the league’s most    valuable player (MVP) in each league. Each voter gets to vote for three different players they consider worthy of the award. Their first-place candidate gets 5 points, their second-place

candidate gets 3 points, and their third-place candidate gets 1 point. Points are then added up across all voters, and the player with the most total points wins the award. Suppose there are three voters—Neyer, Law, and Phillips—and five potential candidates for the award— Alex, David, Raffy, Manny, and Mario. The following table showshow each voter ranks the

candidates. In addition, note that candidate Raffy is embroiled in a substance abuse scandal. A verdict on his guilt or innocence, will be made public one day before voting for MVP. A   guilty verdict will nullify his votes.

(a) Who will win the MVP if Raffy is found innocent?

(b) Who will win the MVP if Raffy is found guilty?

(c) What problem with consistent aggregation does this MVP example illustrate?