INSTRUCTORS MANUAL: - Mikesell © 2018 Cengage Learning. All Rights R...

Instructor Resource Manual – Fiscal Administration, Analysis, and Applications, 10e – Mikesell

1 © 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

INSTRUCTOR’S MANUAL:

FISCAL ADMINISTRATION, ANALYSIS , AND APPLICATIONS FOR THE

PUBLIC SECTOR

JOHN L. MIKESELL

INDIANA UNIVERSITY

TENTH EDITION 1 / 4

Instructor Resource Manual – Fiscal Administration, Analysis, and Applications, 10e – Mikesell

2 © 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

Chapter 1: Fundamental Principles of Public Finance

Questions and Exercises

1.

• Yes. Total project benefits ($4,900) exceed total project cost ($4,000).
• No. No individual has benefits greater than the total cost of the project.
• No. Based on net benefits, A and B would vote yes; C, D, and E would vote

no.

• Revise cost shares so that Residents A and B pay more and reduce cost shares

borne by C, D, and E.

• Student answers will vary. According to Dillon’s rule, the local level lacks power

if state law is silent about a particular local power. Students should research the practices within their states.

• Many of the benefits of primary and secondary education are public or social

(external to the recipient of the education). The entity paying for the service is not able to capture the full benefit of the service.

• No—the bread is rival and exhaustible.

• Student answers will vary somewhat, but should agree that local libraries are not

pure public goods because local libraries are rival. If almost everyone in town visited the library at the same time, the next person to arrive would have trouble getting inside. Local libraries are also excludable in that they could require a paid membership. Government-supported local libraries, however, provide information and education regardless of the ability to pay. Moving to government provision/private production or private provision/private production would risk excluding people who could not afford to purchase a membership.

Examination Questions

• Bain Educational operates an elementary school in Big Bucks, Kansas. It is open

to any student in the local school district and the school is financed by a property tax levied by the local school district. This represents an example of

• public provision and public production.
• public provision and private production.
• private provision and private production.
• private provision and public production.
• / 4

Instructor Resource Manual – Fiscal Administration, Analysis, and Applications, 10e – Mikesell

3 © 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

• Which of the following arguments is based on the concept of adverse selection?

• The U.S. Military needs higher pay to attract the best personnel.
• Private medical insurance companies seek to exclude those most likely to

need healthcare.

• Only the national government can successfully conduct macroeconomic

stabilization policies.

• Mosquito abatement is a public good.

• Which of the following would be described as a common pool resource?

• A can of soda
• An aquifer
• National defense
• A movie theater

• Which of the following is an application of the principle of moral hazard?

• People build homes in areas subject to severe flood damage when federally

subsidized insurance is available.

• Inappropriate lyrics are viewable on the Web when regulations are not

enforced.

• Actions by one individual have an impact on innocent bystanders.
• None of these.

• Toll goods are characterized by

• joint use and exclusion not feasible.
• alternate (or competitive) use and exclusion not feasible.
• joint use and exclusion feasible.
• alternate (or competitive) use and exclusion feasible.

6. Nonappropriability consists of the following two aspects:

• nonsubsidization and nondistribution
• nonexclusion and nonexhaustion
• taxing and spending
• none of these
• / 4

Instructor Resource Manual – Fiscal Administration, Analysis, and Applications, 10e – Mikesell

4 © 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.

• A public project produces the following pattern of individual benefits and costs

for the people influenced by the project.

Individual Benefit Cost Share

A $8,000 $7,000

B $6,000 $5,000

C $10,000 $9,000

D $4,000 $6,000

E $2,000 $6,000

Total $30,000 $33,000

The project

• passes the Pareto criterion but is not economically feasible.
• would pass a majority vote but not the Pareto criterion.
• passes the criterion of economic feasibility, but would not pass majority vote.
• passes the Pareto criterion but would not pass a majority vote.

• If a good is characterized by easy exclusion but many may concurrently use it

without reducing the amount available for others, the good is a

• private good.
• common property resource.
• toll good.
• public good.

• Which is NOT a reason for privatizing government services?

• To increase production efficiency.
• To improve service to the public.
• To raise cash.
• All of these are reasons to privatize.

10. Logrolling is the process where:

• one legislator trades his/her vote on one issue in exchange for the vote of

another legislator on a second issue.

• campaign contributions are used to secure a legislator’s vote on a particular

issue.

• media campaigns are initiated by special interest groups to sway public

opinion and subsequently legislators vote on issues.

• unrelated amendments are attached to pending legislation to secure its passage
• / 4