PADM 5006 Final Exam Fall 2011

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. Suppose proponents for a dam argue the dam will supply water for irrigation increasing farm production and so health because fresh fruits and vegetables promote health and agricultural jobs, municipal water key for growth, flood control, environmentally clean hydroelectric power generation, and recreational water activities and employment, raise property values and tax revenues and so clearly it should be built.

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) Apples

b) National Defense

c) Christmas Tree in Rockefeller Center

d) On-line libraries

e) Local Library

f) Public health clinic

g) Concert in the park

h) Highway

i) Lake Erie

j) Pizza

3. In some areas of Texas uranium is in rock that lines fresh water aquifers. These aquifers are used for drinking and irrigation water. Some uranium mining techniques drill into this rock and use injections that free metals such as uranium and arsenic into the water. If consumed uranium can cause cancer, kidney damage and may adversely affect reproduction and fetuses.

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? 

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. Denmark recently created a new “fat tax” based on how much saturated fat is in food. It works out to add about “12 cents to a bag of chips, 39 cents to a small package of butter and 40 cents to the price of a hamburger.” (http://articles.latimes.com/2011/oct/03/news/la-heb-fat-tax-denmark-20111013).

a) Please discuss this new tax 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?