PADM 5006 Final Exam Fall 2005

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 build a history museum. They point out that this would provide educational benefits to local residents, be a tourist site that would stimulate demand for other businesses in the area, and therefore also generate additional sales tax revenues. Since surveys of area residents indicate that education is a top priority 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) Soap

b) Economic Report of the President in electronic format on the web

c) Economic Report of the President in hardcopy in the library

d) National defense

e) Holiday tree in Rockefeller Plaza

f) Public health clinic

g) TANF

h) Highway

i) Medicaid

j) “Coats for Kids” gathered in the annual community charity drive for distribution to needy families

3. The Great Lakes currently provide the main source of drinking water for 30 million people and are 20% of the fresh surface water in the world. They also provide great aesthetic beauty, recreation, and are key to the U.S.'s shipping network. Unfortunately they have some serious problems including “proliferation of invasive species, the deterioration of animal habitats, toxic hot spots blamed on pollution and tainted wetlands and tributaries” (http://www.modbee.com/24hour/nation/story/2976408p-11651313c.html). 8 U.S. states and 2 Canadian provinces border the Great Lakes.

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

b) How could public policy be used to reduce the level of some of these problems? 

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

d) Is there an implication in terms of what level of government is appropriate for different activities?

4. The San Joaquin Valley Air Pollution Control District is considering rules that would require builders to use air-quality-friendly design features such as sidewalks, insulation, turnouts for bus stops, shade trees and walking trails or pay fees for the expected additional pollution from traffic. The money would be used for clean-burning public buses, to replace dirty diesel engines and to pave road shoulders. For residential construction it is estimated this would add $780 to $1,770 per house.

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 fee?

5. What are the differences between a social insurance program and an income redistribution program? (Please give an example of each and explain how the justifications differ.)