PADM 5006 Final Exam Fall 2012 Version 1
Use separate sheets of paper as needed to answer. Please explain your responses. 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.
Part I (20 points each)
1. A community group proposes the city should plant more trees in their area. They point out that planting and maintaining the trees will help employ people. The trees will tend to counteract some severe heat problems in the city, add aesthetic beauty to the area, reduce pollution, and thus promote well-being and health. This will raise property values and so increase tax revenues. Since better health saves lives, and lives are infinitely valuable, they argue this project should clearly be undertaken.
a) Do you see any problems with their analysis so far?
b) What other kinds of information would you want in order to carry out a benefit cost analysis?
c) 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) National Defense
b) See’s Candy
c) The Gutenberg Project On-line library
d) CSU Stanislaus Library
e) Public health clinic
f) Concert in the park
j) Fireworks display
3. Soot in the air causes breathing problems, asthma attacks, heart attacks, strokes and premature deaths. Causes of soot in the air include “motor vehicles, coal-burning electric power plants, factories, … residential fireplaces and wood stoves, ... windblown dust, vehicles traveling on unpaved roads, … crushing and grinding operations, …smokestacks, [interaction of] gases such as sulfur oxides and nitrogen oxides…with other compounds. These tiny bits of soot can travel hundreds of miles downwind of the original pollution sources.”
a) Why might it be desirable to have government involvement? (Please relate this issue to the Coase Theorem.)
b) How could public policy be used?
c) What are some of the advantages and disadvantages of alternative approaches?
d) What level of government is appropriate for dealing with soot using one of these approaches? Why?
4. Maine produces 99% of U.S. wild blueberries. In addition to normal sales taxes Maine charges an additional .75 cent tax per pound to help fund research at the University of Maine on blueberries including conservation and promotion. (http://dontmesswithtaxes.typepad.com/dont_mess_with_taxes/2010/03/maine-tax-tidbit-blueberry-tax.html, http://www.mainelegislature.org/legis/statutes/36/title36ch701.pdf)
a) Please discuss this tax 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. Please explain how adverse selection and moral hazard relate to social insurance programs.
2. A key characteristic of perfectly competitive industries is that firms can enter and exit relatively easily. What does this imply for the long run elasticity of supply in a perfectly competitive industry? Why should public administrators care about this information when considering taxing a perfectly competitive industry?