PADM 5006 Exam 1 Fall 2012 Version 1


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 Regional Development Council (RDC) has asked President Aquino to impose a ceiling on the prices of basic commodities in Northern Mindanao while families who were severely affected by flood brought about by Tropical Storm “Sendong” here and in Iligan City are slowly recovering.” (  Do you see any problem with this strategy to help people? 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. Do you consider fire department services a public good (or near public good)?  Why or why not?


4. Avocados have been found to be high in nutrients that help in fighting diseases such as prostate cancer, oral cancer, and breast cancer, eye diseases, heart disease, and stroke. Suppose the Avocado Growers Association of California argues that since avocados clearly provide significant positive externalities your government agency should provide subsidies for avocados.  Please respond to their argument for funds from your budget.


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


6. What’s 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.      The gas industry would like to use hydraulic fracturing to release natural gas in parts of New York state.  Some people are concerned about potential contamination of the drinking water and air.  Health studies are currently being done (  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?  Which would you recommend?

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?