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1. Imagine that you live in a city that currently does not require bicycle riders to wear helmets. Furthermore, imagine that you enjoy riding your bicycle without wearing a helmet.
a. From your perspective, what are the major costs and benefits of a proposed city ordinance that would require all bicycle riders to wear helmets?
b. What are the categories of costs and benefits from society’s perspective?
2. The effects of a tariff on imported kumquats can be divided into the following categories: tariff revenues received by the treasury ($8 million), increased use of resources to produce more kumquats domestically ($6 million), the value of reduced consumption by domestic consumers ($13 million), and increased profits received by domestic kumquat growers ($4 million). A CBA from the national perspective would find costs of the tariff equal to $19 million – the sum of the costs of increased domestic production and forgone domestic consumption ($6 million + $13 million). The increased profits received by domestic kumquat growers and the tariff revenues received by the treasury simply reflect higher prices paid by domestic consumers on the kumquats that they continue to consume and, hence, count as neither benefits nor costs. Thus, the net benefit of the tariff is negative (-$19 million). Consequently, the CBA would recommend against adoption of the tariff.
a. Assuming the Agriculture Department views kumquat growers as its primary constituency, how would it calculate the net benefit if it behaves as if it is a spender?
b. Assuming the Treasury Department behaves as if it is a guardian, how would it calculate the net benefit if it believes that domestic growers pay profit taxes at an average rate of 20 percent?