PADM 5006 Final Exam Fall 2012 Version 2
Use separate sheets of paper as needed to answer. Please explain your responses. 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.
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 to carry out a benefit cost analysis?
c) 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) Herbal tea
c) Economic Report of the President in electronic format on the web
d) Stanislaus County Library
e) Public restaurant
f) Street light
h) Warrior Lake (the pond on our campus)
3. Small scale gold mining and processing is now a significant source of mercury emissions in the world. Once in the environment mercury can get into water supplies and the food chain. Mercury can be toxic and make people psychotic. So far the increases in the price of gold and attempts by a few countries to restrict sales of mercury have made the price increase 1,100% since 2003. Because of the dangers and expense some mine owners may switch to a cyanide-based processing system.
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 dealing with mercury using one of these approaches? Why?
4. In Minnesota most clothing is not taxed, but if fur makes up more than 3 times as much of the item as the next largest material then firms have to pay 6.5% of the sales price in taxes. (http://money.cnn.com/2004/03/31/pf/taxes/strangetaxes/index.htm)
a) Please discuss this 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 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?