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.Stanislaus County has relatively high unemployment. Suppose a high tech firm is considering locating in Modesto. They indicate that they will hire 100 people into high paying technologically advanced jobs. They note this will have a multiplier effect and generate higher incomes and therefore higher taxes every year forever. Also they point out it will raise local property values and thus increase tax revenues. Therefore they argue the benefits they would bring to the county would be "infinitely valuable" and the county should give them a substantial ($20 million) subsidy to locate in Stanislaus.

1. Comment on whether you think the city should be willing to give a subsidy.
2. Would it matter if they would also train the people they would employ and plan to target for employment people who have been experiencing long term persistent unemployment?

3. Currently in California the government requires auto emissions inspections and emissions control devices. Why might it be desirable for the government to be involved in this issue? (Hint: please relate this issue to the Coase Theorem.) How else could public policy be used to reduce the level of pollution? What are some of the advantages and disadvantages of alternative approaches?

4. Suppose someone suggests: "The Social Security tax is efficient and fair because it is split equally between workers and employers." Discuss this idea. Please include definitions of the key terms used in your arguments.

5. What’s the difference between the economic justifications for social insurance programs such as Medicare and Unemployment insurance versus social redistribution programs such as TANF and Food Stamps?