QUESTION 1 We assume that if a bill is drafted by such a state agency, rather th

Question

QUESTION 1

We assume that if a bill is drafted by such a state agency, rather than by the legislators/lawmakers, it reduces that time of revising a new law to zero (0) and also reduces both lost revenue to the state government and economic loss in the state economy to zero (0). In fact, if the law is effective it may make the state government money and benefit the state economy.

Remember too that our basic formula for this economic model is min SC = ca + c(e). Let’s take the specific information about administrative costs from the presentation, give it labels, and expand on the basic formula.

Administrative costs ca

cD        time spent drafting the law

cR        times spent revising the law

cSB       salaries/benefits of the drafting agency

Which of the following best reflects this expanded information?

min SC =( cD + cR ) - ( c(e) + cSB)

min SC =( cD + cR + cSB) + c(e)

min SC =( cD + cR ) + ( c(e) - cSB)

min SC = cR + c(e)

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QUESTION 2

Now let’s look at error costs. Our goal is to minimize total social costs, and our formula expresses all costs as positive numbers. We need to maintain that structure for the overall formula but show that there can be beneficial revenue to the state government and economic benefits to the state. Assume that revenue to the state is R and economic benefits to the state is B.

Which of the following best reflects error costs, given that there can be beneficial revenue to the state government and economic benefits to the state, keeping in mind that our main model treats expenses as positive numbers ?

cD = (-R –B)

c(e) = (B – R)

c(e) = (-R –B)

c(e) = (R + B)

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QUESTION 3

Let’s analyze 3 states, each following one of these 3 options:

Indiana – has a state agency for drafting bills and use of the agency is mandatory

Texas – has a state agency for drafting bills and use of the agency is optional

State X – does not have a state agency for drafting bills

Which of the following best describes how administrative costs and error costs will be different between Indiana and Texas?

None of these.

Indiana should have little or no cR but Texas has some.

Error costs for Texas will depend on how many laws are drafted using the state drafting agency.

Indiana has no cR but Texas has some and error costs for Texas will depend in part on how many laws are drafted using the state drafting agency.

min SC =( cD + cR ) - ( c(e) + cSB)

min SC =( cD + cR + cSB) + c(e)

min SC =( cD + cR ) + ( c(e) - cSB)

min SC = cR + c(e)

Explanation / Answer

Answer : 1) Option B is correct.

Because the basic formula is

min SC = ca + c (e)  

Where ca = cost of administration ; c (e) = cost of error.

From the given informations we get that, cost of administration (ca) includes cD, cR, cSB . This means ca = cD + cR + cSB. Now the basic formula can be written as, min SC = (cD + cR + cSB) + c (e) .

2) Option D is correct.

Because from the given informations it is clear that cost of error [ c(e) ] includes state revenue (R) and state benefit (B). As the basic formula is in positive number, hence c(e) = R + B is best to fit in the basic formula because if we use this equation of c(e) in the basic formula then the basic formula of the model remains in positive number.

3) Option A is correct.

Indiana's state agency usation is mandatory which means the cost of administration and the cost of error to minimize the social cost are mandatory. On the other side, Texas's state agency usation is optional which means if state agency use then the cost of administration and the cost of error will be used to minimize the social cost but if the state agency is not using for bill draft then there is no need to use the cost of administration and the cost of error to minimize the social cost. Therefore, there is not given any option which describes this situation clearly and hence option A is correct.

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