The accompanying table shows Tom and Ray’s total willingness to pay for different amounts of public recreational areas (REC), which is measured in acres. The marginal cost of one acre of recreational area is $1,000.

IN TEXTBOOK ONLY CHAPTERS 7, 8, 9, AND 11 ARE RELEVANT

Question 1: The accompanying table shows Tom and Ray’s total willingness to pay for different amounts of public recreational areas (REC), which is measured in acres. The marginal cost of one acre of recreational area is $1,000.

(Attached below is the graph for question 1)

Part A: What is the socially optimal level of recreational areas? Assume you cannot purchase partial acres. Explain your answer.

Part B: What should be the tax burden to Tom and Ray so that their consumer surpluses are equal? Explain.

Question 2: Several states mandate that school district boundaries follow county lines, while other states allow several school districts to locate in the same county. Assume that county size is approximately the same in both of these groups of states. Suppose both groups are considering implementing school vouchers, and proponents in both groups argue that increased competition will lead to greater efficiency. Which group of states is more likely to achieve greater efficiency gains? Hint: Think about Tiebout sorting.

Question 3: Employers often list a 4-year college degree as a requirement for those applying for certain jobs. Is this practice consistent with the screening explanation for education, the human capital story, both, or neither? Explain.

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