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A deeply held belief in Europe is that university education should be financed almost entirely by the government. In France, under-graduates pay about $400 per year in tuition; in Germany, federal law explicitly forbids public universities to charge tuition. However, European governments typically dont provide much money for universities, leading to problems with maintaining quality. In response, some observers want to start charging students substantial amounts of tuition. One German official responded that “one of the prime rights of humanity is to have a free university educa-tion.” In the same way, a Labor member of the British parliament argued that “Introducing a market into higher education is something the Labor Party should not be doing” [Lyall, 2003, p. A3]. Discuss the efficiency and equity con-sequences of a system of taxpayer-financed higher education.
In California, drivers of hybrid cars are per-mined to use the dedicated high-occupancy-vehicle (HOV) lanes on the highways. Given the recent increase in purchases of hybrids, these HOV lanes are becoming increasingly clogged, which leads to an increase in gasoline use and in harmful emissions. Describe an alternative policy for addressing problems with traffic congestion.
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In India, a drug used to treat sick cows is leading to the death of many vultures that feed off of dead cattle. Before the decrease in the number of vultures, they sometimes used to smash into the engines of jets taking off from New Delhi's airports, posing a serious threat to air travelers. However, the decline of the vulture population has led to a sharp increase in the populations of rats and feral dogs, which are now the main scavengers of rotting meat [Gen-demon, 2006, p. A4]. There have been calls for a ban on the drug used to teat the cows. Identify the externalities that are present in this situation. Comment on the efficiency of banning the drug. How would you design an incentive-based regulation to attain an efficient outcome?
According to former Vice President Al Gore, “Classical economics defines productivity narrowly and encourages us to equate gains in productivity with economic progress. But the Holy Grail of progress is so alluring that economists tend to overlook the bad side effects that often accompany improvements” [Miller, 1997, p. A22]. Discuss whether or not this is a fair characterization of “classical economics.” Gore also stated that we need to take “bold and unequivocal action … [to] make the rescue of the environment the central organizing principle for civilization.” Suppose that you were a policymaker trying to decide what to do about automobile emissions. How might you use Gore's dictum as a framework for making your decision?
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