Practice Final Exam ECON4540


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. Alice says:  We should require by law that everyone get a flu vaccination.  Flu vaccinations save lives and promote the public health.   Life and health are infinitely valuable so we must do everything possible to get everyone vaccinated.  Besides over half of all healthcare expenditures come from government funds so this will save resources in the long run since fewer people will need treatment for the serious versions of this illness that can arise.

Bob says:  Freedom is what’s infinitely valuable, including freedom from meddlesome laws and needles.  Any government intervention is completely unjustified.  Viva “Laissez faire”!

a)         Comment on any problems you see to each side’s analysis thus far.

b)         Suggest an alternative proposal to Alice & Bob’s views that you might consider. 

c)         If you were to do a benefit cost analysis of your proposal, what additional kinds of information would you want?

d)         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) New Movie Premiere

b) Sequoia National Park

c) Lindt Swiss chocolate truffles

d) National Defense

e) Santa Clause in the Mall

f) Public restaurant

g) CBS NFL Football broadcast

h) Public housing vouchers

i) Highway

j) Police Services


3.     In California “no burn" days can de declared by a by the state Air Resources Board (ARB) or an “Air Pollution Control District" (APCD) or a similarly defined district. On these days agricultural burning is prohibited usually based on predictions about the air quality.  Government has not always been involved in this issue. Why might it be desirable for the government to be involved? (Hint: please relate this issue to the Coase Theorem.)  How could public policy be used to reduce the level of particulate matter?  What are some of the advantages and disadvantages of alternative approaches?  


4. Suppose a citizen proposes an additional half percent sales tax to fund road improvements.  Discuss this idea from and equity and efficiency perspective.  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?


6. a)Why might the excess burden of debt be lower than the excess burden of an immediate tax?

b) Why might it be the same? c) Why might it be larger?


7. What criteria should be used in choosing whether an area of government activity should be under federal, state or local government control?

8. What difference does it make if the federal government provides an unconditional grant, a matching grant, or a closed-ended matching grant to aid a local area? (Please use sketches illustrating the concept of a local government budget constraint in explaining your answer.)