6a. What are the main arguments based on social efficiency in favor of and the m
ID: 1192634 • Letter: 6
Question
6a. What are the main arguments based on social efficiency in favor of and the main arguments against subsidies for education service? b. How can we tell that the effective government subsidy per student for education service at the richest private universities is larger than the effective subsidy for education service at state-owned universities?
7a. What is an annuity? b. An annuity provides insurance against what outcome?
8. What are the main considerations that determine the efficiency (measured by social surplus for the entire country) of a government-provided pension system like the U.S. social security pension?
9. Why does the effect of a pay-as-you-go (PAYGO) public pension system on private saving depend on the reasons people have for saving? b. Summarize the conclusions discussed in class about the likely effect of the U.S. Social Security system on private saving. Why is the effect potentially important for economic growth?
10a. Why is the current structure of benefits and funding for U.S. Social Security expected to be unsustainable without an increase in the payroll tax rate or a decrease in pension benefits? b. If there is no reform in U.S. social security laws the benefit formula will remain the same. How will the future pension benefits be financed after the Trust Fund is entirely depleted? Be as specific as possible, given the information in the course notes and slides.
11. Under one reform proposal for the U.S. Social Security system, part of the Trust Fund would be invested in stocks. The idea is that stocks have paid a higher average rate of return than government bonds in the past. Explain why this policy would probably affect the average rate of return on stocks. What can be said about the likely direction of the effect–up or down?
Explanation / Answer
6)a) Main arguments based on social efficieny in favour of educational service is the fact that:-
The productivity of a firm increases due to the person's educational background which can be seen or is reflected by the amount of wages he/she earns. In fact, better educated students are more likely to engage in professional activities with significant social benefits not fully compensated by the market. Even when high productivity levels are accompanied by commensurate individual financial rewards, the rest of society benefits from innovations and contributions. We are all affected not only by the level and quality of our own education but also by that of those around us, who can communicate and work more effectively if they are well-educated. Moreover, even if there is no shortage of, for example, scientists, if the best potential scientists are unable to enter the field because of financial constraints, society is poorer than it could be.
The main arguments against subsidies for education service :-
Distortion of the Market: Subsidies distort market prices – for example, export subsidies distort the trade in goods and services and can curtail the ability of ELDCs to compete in the markets of rich nations.
Arbitrary Assistance: Decisions about who receives a subsidy can be arbitrary, based on political aims
Encouraging inefficiency: Subsidy can artificially protect inefficient firms who need to restructure – i.e. it delays much needed reforms.
b) The effective government subsidy per student for education service at the richest private universities is larger than the effective subsidy for education service at state-owned universities because private universities, require endowment income/investment. They get almost all their funding from state governments. The subsidies on private is to ensure that the universities continue to run even it is facing loses.
7) a) An annuity is a contractual financial product sold by financial institutions that is designed to accept and grow funds from an individual and then, upon annuitization, pay out a stream of payments to the individual at a later point in time. The period of time when an annuity is being funded and before payouts begin is referred to as the accumulation phase. Once payments commence, the contract is in the annuitization phase.
b) Annuities provide insurance against a drop in standard of living and thus are an important tool for retirement planning. Through risk pooling, insurers can offer annuities with potentially higher sustainable level of income than can be achieved with other financial assets.
8) The historical evolution of Social Security programs shows that while the economic rationales for government provision can explain in part the emergence of such systems as industrialization took hold, it is clear that political factors have played an important role in the development of these programs. A number of economists have studied the political economy of Social Security with the aim of explaining why Social Security systems take the form that they do. In the process, these researchers have developed some additional efciency arguments for government provision of Social Security
9,10,11 ---- > so many qns. in one part
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