PADM 5006 Final Exam Fall 2007

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: “Every year young people die swimming in the canals. If more public swimming pools were available they wouldn’t swim in the canals. Thus if we build a local pool we will not only promote health and well-being, we will save lives. Since these young lives are infinitely valuable this project should clearly be undertaken. Having a community swimming pool will also increase local property values and thus local property tax revenues. Since there will be multiplier effects the benefits will extend to so clearly this project should be undertaken.”

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) 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) ASI provided cookies

b) GPS signals broadcast

c) TV broadcast of a Holiday Concert

d) National defense

e) Celebration of light holiday parade downtown

f) Public restroom

g) TANF

h) Highway

i) Hannah Montana Concert at Oracle Arena

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

3. Recently about 58,000 gallons of oil spilled from a cargo ship after it bumped the San Francisco-Oakland Bay Bridge. This has hurt local beaches, wildlife, fishing and tourism.

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. “We tax gasoline, cigarettes, and alcohol because of negative externalities, clearly we should tax candy.”

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. Explain how the justifications differ between social insurance programs and income redistribution programs.

2. The elasticity of demand for cigarettes for addicted smokers is very low. The elasticity of demand for cigarettes for teenagers is much higher. The long run elasticity of demand for cigarettes is much higher than the short run elasticity of demand. The long run elasticity of supply is also much higher than the short run elasticity of supply. Why should public administrators care about this information when considering taxing cigarettes? Include a demand and supply sketch in your explanation.