ECON 5050 Practice Exam 1 (W&W chapters 1,2,3,10,11,12,13,14& ERP chapters 4,5,6)

Sunnydale is considering a downtown revitalization and beautification program. As part of the plan an overpass will be constructed so that through traffic will not need to go through the downtown area. Main street will be narrowed from four lanes to two, but with more 30 degree angle parking and the sidewalks will be widened making the area more friendly to pedestrians and ideal for more outside seating at cafes. Planters, street trees, and street furniture such as light fixtures, trash cans, bike racks and benches are also planned.

Note this question has 10 parts intended to guide you in analyzing some aspects of this project. If you think carefully each part can be concisely explained in a few sentences using concepts and principles developed by public finance economists.

a. In designing a benefit cost analysis of this project what are some of the key data or information you would want to gather?

b. Does it matter that some benefits or costs may be on-budget or off-budget items? Be sure to give an example of each to illustrate your explanation.

c. Does creating a pedestrian friendly downtown area fit a public finance argument for government intervention? Why or Why not?

d. Smoother traffic flow via the overpass may also decrease air and noise pollution. Does this imply further reason for government intervention? Why or why not?

e. Sunnydale is concerned there could be huge upward cost revisions over the time it takes to complete the project. In evaluating the costs of the project how could you try to account for the risk that it might cost millions of dollars more than your first estimate?

f. What are some alternatives you might consider for funding such a project, and why?

g. Suppose a tax on property is used. What would be the likely incidence of such a tax?

h. Some argue for taxes on visitors, such as car rental taxes, extra conference fees, and hotel taxes. They say that way the burden will be born by people from outside of Sunnydale. Why might this be true? Why might it not be true?

i. Part of the purpose of the revitalization plan was to draw in tourists from the nearby big cities and increase employment in the local service sector since many of the unemployed in the area are currently most suited to this type of work. Many of these people have relatively low income. Would this matter in deciding how to fund the project?

j. Does it make more sense for these policies to be handled at the federal, state, or local level? Why?