Author Question: Why do school districts sell bonds to the public when they are financing a new school building ... (Read 116 times)

go.lag · **on:** Jun 29, 2018

Why do school districts sell bonds to the public when they are financing a new school building program rather than sell stock?

What will be an ideal response?

Question 2

Use Figure 16.2 above to answer the following question. Assume that MPC represents the marginal private cost and MB is the marginal private benefit for a particular firm.

Assume however, that the MDC represents the marginal damage cost of this firm's activity and the MSC is the marginal social cost. How much output would the firm produce if it had to internalize the negative externality.

sailorcrescent · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

School districts sell bonds for these types of expenditures because the assets will have a long life and the bond can be paid back over time. They don't sell stock because school districts are typically not corporate entities but rather run by the government. Selling stock would imply that the holders of the stock have ownership in the company and a claim on its profits. Since school districts are not companies and don't make profits it is more appropriate to sell bonds to finance these expenditures.

Answer to Question 2

The firm will produce 5 units since it would now recognize the MSC curve as being its own marginal private cost curve.