PADM 5006 Final Exam Fall 2009

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.

Part I (20 points each)

1. Proposal: “Require by law that everyone get a flu vaccination. Flu vaccinations save lives and promote the public health. Life and health are infinitely valuable so we must do everything possible to get everyone vaccinated. Besides over half of all healthcare expenditures come from government funds so this will save resources in the long run since fewer people will need treatment for the serious versions of this illness that can arise. Also this will promote employment since people will be hired to give the immunizations and thus create a multiplier effect so the benefits will extend to everyone. Another benefit is that with less illness we will also collect more in income taxes.”

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

b) What other kinds of information would you want or need 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) National Defense

b) Coffee

c) Santa at the Mall

d) On-line libraries

e) Local Library

f) Public health clinic

g) Police services

h) Highway

i) Thanksgiving Day Parade

j) Raisins

3. People in Detroit and in other parts of the country are concerned about the adverse effects of diesel soot, particularly from trucks, on health. They say “Diesel soot shortens the lives of over 21,000 people a year in the United States and contributes to uniquely Detroit problems including high asthma hospitalization rates.” (http://www.allianceforhealthyair.org/2009/12/join-the-community-fight-to-reduce-diesel-pollution-in-detroit/#more-168 )

a) Why might it be desirable to have government involvement? (Please relate this issue to the Coase Theorem.) 

b) How could public policy be used to reduce the level of diesel soot in the air? 

c) What are some of the advantages and disadvantages of alternative approaches?

d) What level of government is appropriate for some of these different approaches and why?

4. "A tax on sugar-sweetened beverages is really a double-win," said Dr. David Ludwig, ... "We can raise much-needed dollars while likely reducing obesity prevalence, which is a major driver of health care costs” (http://abcnews.go.com/Health/WellnessNews/leading-researchers-propose-tax-sugared-drinks/story?id=8594299 ).

a) Please discuss this proposal using some of the criteria from public finance for evaluating a tax. Be sure to include definitions of the key terms used in your arguments.

b) What influences on the magnitude of excess burden might come into play with this tax?

Part II (10 points each)

1. Please explain how the adverse selection and moral hazard relate to social insurance programs.

2. A key characteristic of perfectly competitive industries is that firms can enter and exit relatively easily. What does this imply for the long run elasticity of supply in a perfectly competitive industry? Why should public administrators care about this information when considering taxing a perfectly competitive industry?