PADM 5006 Final Exam Fall 2004

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 the city should plant more trees in their area. They point out that planting and maintaining the trees will help employ people. The trees will tend to counteract some severe heat problems in the city, add aesthetic beauty to the area, reduce pollution, and thus promote well-being and health. Since better health saves lives, and lives are “infinitely valuable”, they argue this project should clearly be undertaken.

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

b) What other kinds of information would you want in order 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) Coffee

b) Radio broadcast

c) Santa in the mall

d) National defense

e) Local police services

f) Public restaurant

g) TANF

h) Highway

i) Medicaid

j) Street light

3. In California the government periodically requires auto emissions SMOG tests and remediation if a car pollutes “too much”. Why might it be desirable for the government to be involved in this issue? (Hint: please relate this issue to the Coase Theorem.)  How else could public policy be used to reduce the level of pollution?  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 the state are considering substantially raising taxes on fast food in order to fund more health education relating to nutrition. Part of their argument is that they hope to distort people’s behavior so they will eat more healthy meals. 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 a social insurance program and an income redistribution program? (Please give an example of each and explain how the justifications differ.)