PADM 5006 Final Exam Fall 2003

Use separate sheets of paper as needed to answer. Please be sure to put your name on your answer sheets and the number of the question you are answering. When done staple all your answer sheets and your exam together and hand them in.

Please explain your responses.

1.Suppose a community group proposes additional mass public transportation services be extended into their area. They point out that this basic infrastructure will help employ people, reduce pollution and congestion, and thus promote well-being and health. Since there will be multiplier effects and thus the benefits will extend to everyone they argue the benefits are clearly “infinitely valuable” and this project should be undertaken.

a) Do you see any problems with their analysis so far?

b) What other kinds of information would you want to carry out a benefit cost analysis

c) Once you have the information you would use in a benefit cost analysis how would you handle benefits and costs that occur in different periods of time?

2. Which of the following would you classify as a public good or private good? Briefly, why?

a) Public restroom

b) DeBeers Diamonds

c) Economic Report of the President on the web

d) See’s Chocolate and Variety

e) Local police services

f) Radio broadcast

g) Public housing vouchers

h) Highway

i) Medicaid

j) National defense

3. In California “no burn" days can de declared by a by the state Air Resources Board (ARB) or an “Air Pollution Control District" (APCD) or a similarly defined district. On these days agricultural burning is prohibited usually based on predictions about the air quality. Government has not always been involved in this issue. Why might it be desirable for the government to be involved? (Hint: please relate this issue to the Coase Theorem.) How could public policy be used to reduce the level of particulate matter? What are some of the advantages and disadvantages of alternative approaches? Is there an implication in terms of what level of government is appropriate for different activities?

4. Suppose some people in a state are considering tripling the vehicle-licensing fee in order to fund local police and fire services. Part of their argument is that there won’t be much distortion of behavior because most people have already bought their cars and this will be fair because only the rich buy fancy expensive cars so this tax will be a progressive tax. Regardless of your own normative feelings regarding a similar experience in California please discuss this proposal using some of the criteria from public finance for evaluating a tax. Please include definitions of the key terms used in your arguments.

5. What’s the difference between the economic justifications for social insurance programs such as Medicare and Unemployment insurance versus social redistribution programs such as TANF and Food Stamps?