Question2. Recall the two policy options discussed in Summers’ memo:

Option A: the status quo

Option B: Moving the dirty industry from the developed country (DC) to the less developed country (LDC) and paying an appropriate compensation to the LDC by the DC

c. State the ranking of the two policy options by DC and by LDC according to the memo.

d. Is the Pareto principle applicable to the situation that you stated in c? If no, explain; if yes, which version of the principle (Pareto principle or/and weak Pareto principle) is applicable?

e. According to your stated ranking in c, between the two policy options, which one is Pareto efficient and which one is not Pareto efficient? Explain.

3. This question is based on one of your week 3’s reading: Daniel M. Hausman and Michael S. McPherson. 1997. Beware of Economists Bearing Advice. Policy Options 18 (7): 16-19.

f. In illustrating the economist’s argument for why welfare benefits should be provided in cash rather than in in-kind, Hausman and McPerson identify three main assumptions behind the argument. What are the three main assumptions behind the economist’s argument that they identify?

g. In their discussion in the SECTION, “Is the goal to increase well-being?”, what caution and complication should we be aware in articulating the goal(s) of the policy?

Question2. Recall the two policy options discussed in Summers’ memo:

Option A: the status quo

Option B: Moving the dirty industry from the developed country (DC) to the less developed country (LDC) and paying an appropriate compensation to the LDC by the DC

c. State the ranking of the two policy options by DC and by LDC according to the memo.

d. Is the Pareto principle applicable to the situation that you stated in c? If no, explain; if yes, which version of the principle (Pareto principle or/and weak Pareto principle) is applicable?

e. According to your stated ranking in c, between the two policy options, which one is Pareto efficient and which one is not Pareto efficient? Explain.

3. This question is based on one of your week 3’s reading: Daniel M. Hausman and Michael S. McPherson. 1997. Beware of Economists Bearing Advice. Policy Options 18 (7): 16-19.

f. In illustrating the economist’s argument for why welfare benefits should be provided in cash rather than in in-kind, Hausman and McPerson identify three main assumptions behind the argument. What are the three main assumptions behind the economist’s argument that they identify?

g. In their discussion in the SECTION, “Is the goal to increase well-being?”, what caution and complication should we be aware in articulating the goal(s) of the policy?