Econ 321 Public Finance

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Public Finance
Exam II
Study Guide

Explain in detail and with an example Arrow's Impossibility Theorem as is relates to cycling. •The Arrow Impossibilty Therom states that it is impossible to have a voting system that meets a set of conditions that guarantee a unique political equilibrium for a public choice, which means that majority rule cannot be relied on to reach a political equilibrium. For However, a voting rule can produce unique public choices when voters have preferences that meet certain properties. Cycling and the lack of a political equilibrium under pair-wise voting in majority rule are caused by multiple-peaked preferences. When all voters have a single-peaked preferences, simple majority rule is capable of achieving a political equilibrium for a single issue election at the median peak for all voters.

Explain in detail the median voter model and what it implies for the provision of public goods. •The median voter rule says that political equilibrium is the median most preferred outcome of all voters when collective choices are made under majority rule and all voters have single-peaked preferences. This specifically applies for any tax-sharing arrangement. The greater the dispersion of most-preferred outcomes from the median, the more likely there will be dissatisfaction with public choices under majority rule.

Explain in detail and with an example the concept of logrolling. •When more than 1 issue is voted on simultaneously as a package voters are sometimes confronted with political packages that include both favorable & unfavorable terms, if the package contains terms that are favorable for oil producers & some favorable for shoe makers, oil producers have an objective to get shoe makers to vote in their favor if there is greater benfit for voting for the package than not. than it not be put into place shoe makers

Explain why Arrow’s Impossibility Theorem’s conclusion results in the author of the ballot having enormous power....
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