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

PADM 5006 Exam 1 Fall 2008

Use separate sheets of paper as needed to answer. Please be sure to put your name on your answer sheets, the part of the exam you are answering, and the number of the question you are answering. When done staple together all your answer sheets with this copy of the questions on front and hand them in.

Part I (60 points): Please briefly explain your responses.

1. The prices of some agricultural goods such as corn have been rising recently. Some people think the government should set a maximum price for these goods since food is a necessity. Briefly explain a potential problem of setting such maximum prices. Include a demand & supply sketch in your answer.

2. Why should you care about the elasticity of demand and elasticity of supply for a good you are considering subsidizing? Include a demand and supply sketch in your explanation.

3. What are some of the major criticisms of the definition of the poverty line used in the U.S.?

4. Recent studies have found numerous health benefits to almonds. Almonds are high in protein, vitamin E, magnesium, fiber, potassium, calcium, phosphorus and iron. They help satisfy hunger and may reduce bad cholesterol, lower the probability of heart disease, stroke, and other chronic diseases. The majority of the worlds almond supplies are grown here in the valley. Do almonds provide significant enough positive externalities that government should provide substantial subsidies for buying almonds?

5. What basis should you use for choosing an appropriate discount rate for present value calculations?

6. Whats the difference between a social insurance program and an income redistribution program? Please give an example of each and explain how the justifications differ.

Part II (40 points): Please explain your responses fully.

1. Diesel truck transport emits nitrogen oxide and toxic particulates that can aggravate asthma, cancer and heart disease. Some types of trucks have been banned in Southern California (,0,3204314.story). Based on the Coase Theorem, why might it be desirable for the government to be involved in this issue? What are some of the advantages and disadvantages of the 5 usual alternative approaches to dealing with externalities in terms of this case?

2. a) What is Social Security?

b) How does Social Security work?

c) Why are some problems with Social Security anticipated?

d) What are some alternatives for dealing with these problems?