PADM 5006 Final Exam Fall 2006

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 high-speed rail transportation services be extended into their area. They point out that this basic infrastructure will make commuting to major cities easier, increase local property values and thus local property tax revenues, help employ people, reduce pollution, congestion, and stress and thus promote well-being and health. Since there will be multiplier effects and thus the benefits will extend to everyone and since health is infinitely valuable they say 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 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) Brownies

b) Concert at Carnegie Hall

c) TV broadcast of a Concert at Carnegie Hall

d) National defense

e) Celebration of light holiday parade downtown

f) Public health clinic

g) TANF

h) Highway

i) Medicaid

j) Salvation Army gift boxes of food for distribution to needy families

3. Long Island Sound is bordered by Connecticut and Long Island, New York including such major cities as Bridgeport, New London, Stamford, Norwalk, New Haven, Port Jefferson and New York City. It is part of the watershed for about 8 million people. Property along the Sound is extremely valuable. The Sound used to have extremely valuable fishing but now suffers from low oxygen levels, toxins and pathogens and other pollution.

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. Suppose someone suggests: "Only people with high incomes buy lobster, therefore we should tax lobster. That way the tax will be fair since it will fall on those with the greatest ability to pay. It will also be efficient since lobster is perishable and so people won’t drive long distances to avoid the tax.”

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?

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.)