1. Why does the operation of a market system presuppose that individual rights are protected? Describe an economy in which individual rights are not protected. What institutions of government protect individual rights, and how do they work?

2. What is utilitarianism? What are the advantages and disadvantages of using utilitarianism to determine the public interest? Is some form of utilitarianism currently being used to measure the public interest? Explain. Should some form of utilitarianism be used?

3. Explain the concepts of Pareto optimality and Pareto superiority. How do the concepts differ? Would the Pareto criteria or utilitarianism provide a more effective measure of the public interest?

4. Relate the notion of potential compensation to the concept of Pareto superiority. If the beneficiaries of a change could potentially compensate the losers, is the change in the public interest? Are there some conditions under which potential compensation would suffice as a measure of the public interest and others under which actual compensation should be demanded?

5. What is a cost-benefit analysis? What problems might arise in trying to carry out such an analysis? Is a cost-benefit analysis more closely related to utilitarianism or to the Pareto criteria? Given the necessity of determining what is in the public interest, is a cost-benefit analysis a reasonable method of making the determination? What additional criteria could be used to supplement a cost-benefit analysis?

6. What is the distinction between positive and normative economics? Why is this distinction especially relevant to the study of public finance?

7. Is there a trade-off between equity and efficiency in public policy, or can the two goals be reached simultaneously? Explain how policies might be designed that are both equitable and efficient.