Q6. Consider a specific example of t... [FREE SOLUTION]

Chapter 5: Q6. (page 115)

Consider a specific example of the special-interest effect and the collective-action problem. In 2012, it was estimated that the total value of all corn-production subsidies in the United States was about $3 billion. The population of the United States was approximately 300 million people that year.
a. On average, how much did corn subsidies cost per person in the United States in 2012? (Hint: A billion is a 1 followed by nine zeros. A million is a 1 followed by six zeros.)
b. If each person in the United States is willing to spend only $0.50 to support efforts to overturn the corn subsidy, and if anti-subsidy advocates can only raise funds from 10 percent of the population, how much money will they be able to raise for their lobbying efforts?
c. If the recipients of corn subsidies donate just 1 percent of the total amount that they receive in subsidies, how much could they raise to support lobbying efforts to continue the corn subsidy?
d. By how many dollars does the amount raised by the recipients of the corn subsidy exceed the amount raised by the opponents of the corn subsidy?

Short Answer

Expert verified

The cost of corn subsidies per person is $10.
The total money raised for lobbying efforts against the corn subsidy provision is $15million.
The money raised for lobbying efforts favoring corn subsidy provision is $30 million.
Lobbying fund amount raised by recipients exceeds the amount raised by opponents of corn subsidy by $15 million.

Step by step solution

Explanation for part (a)

The average amount of corn subsidies are calculated by finding the ratio of total subsides by the population size. Thus, with a population of 300 million people and $3 billion of total corn-production subsidies, the cost of corn subsidies per person would be $10, as shown below: $C o r n s u b s i d i e s p e r p e r s o n = \frac{T o t a l c o r n s u b s i d i e s}{T o t a l p o p [u l a t i o n} = \frac{3, 000, 000, 000}{300, 000, 000} = $ 10$

Explanation for part (b)

The total money raised for anti-subsidy lobbying activities/efforts is calculated by finding the product of the willingness to spend per person to over-turn corn subsidy policy and the portion of the population that supports anti-subsidy policy or lobbying efforts, as shown below: $T o t a l f u n d s = M o n e y r a i s e d f r o m a \sin g l e p e r s o n 脳 T o t a l p e o p l e w h o g a v e m o n e y = 0.50 脳 (10 % o f 300 m i l l i o n) = 0.50 脳 (0.10 脳 300, 000, 000) = $ 15, 000, 000$

Thus, the total money raised by opponents to stop corn-production subsidies and to fund the respective lobbying efforts is $15 million.

Explanation for part (c)

The total money raised for lobbying activities/efforts in favor of providing subsidies is one percent of the total subsidies received by the recipients. $T o t a l f u n d s = 1 % o f 3 b i l l i o n = 0.01 脳 3, 000, 000, 000 = $ 30, 000, 000$

Thus, the total money raised by recipients to continue the corn-production subsidies and to fund the respective lobbying efforts is $30 million.

Explanation for part (d)

The recipients of corn subsidies raised $30 million funds, whereas the opponents of the corn subsidy raised $ 15 million. Thus, the recipients raised $15 million more than the opponents (=30-15).