Dao Phuong Anh 2010500307 PROBLEM SET 1 Econ 0104 Question 2- 1* Simply, astronomy science is more objective than

economics by its nature. Astronomers cannot substantially influence the reality by implementing their ideas into the universe. That is, planets and stars do not change their behavior quickly when they are being analyzed, while human beings do. Moreover, the parameters of the universe are almost constant over a hundred years (within 1 human life), while the parameters in economics can drastically change within 1 year and in different areas. Question 2 1 In 2008, presidential candidate John McCain proposed extending the cut in marginal income tax rates passed during the Bush administration. We know that theory alone cannot predict how labor supply would be affected if this proposal were implemented. If there were no political or legal impediments to doing so, how could you briefly design an experimental study to estimate the impact of lower marginal tax rates on labor supply? Question 2- 4: There are two pitfalls here. First, the random sample of the social experiment is not fully the accurate representative of the entire population of consumers who bought health insuarance because participants got the advantages to trade their normal policies for new RAND policies. In addition, the RAND Health Insurance Experiment was of limited duration, after which the participants would move to some other health plan, there the problems of extending results beyond the scope of the experiment. Those

certain behavior in the short-run in the 1970s that would not necessarily be the situation in 1993. Besides, RAND experiment could be very specific and designed for some certain regions which cannot reflect the impacts of a universal coverage in national scale.

Question 2-5: The control group: The treatment group: The key assumption:

Question 18-1: Within one state, the supply of production factors is more elastic relatively to within one nation. For example, high-wage seeking workers can easily migrate to other states when there is a unfavorable changes in their local labor market. However, immigration between different countries is more troublesome and likely, workers movement across countries is less frequent than across states within one country. Therefore, an income tax reduction, which directly increases disposal income, at the state level is likely to lose less/gain more revenue than such a reduction at the federal level given same other factors. Imagine the state lowers tax rates and other states still stick with their tax policies, then out-state businesses will enter and spur economic activity that can induce the rise in tax revenue.