PADM 5006 Exam 1 Fall 2012 Version 2


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 government of Greece tried imposing price ceilings on unleaded petrol in May 2011. (  Do you see any problem with this strategy? 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 taxing? Include a demand and supply sketch in your explanation.


3. Do you consider police department services a public good (or near public good)?  Why or why not?


4. “Walnuts have a combination of more healthful antioxidants and higher quality antioxidants than any other nut” ( They also provide high quality protein, vitamins, minerals and dietary fiber, can help reduce heart disease, lower cholesterol, help control weight, and improve brain health. Suppose the Walnut Growers Association of California argues that since walnuts clearly provide significant positive externalities your government agency should provide subsidies for walnuts.  Please respond to their argument for funds from your budget.


5.    At least 2 California governors have considered a suggestion to require students to provide community services in order to graduate from state subsidized universities.  It has been argued this will make it possible to undertake many more community projects and reduce costs since the labor will be essentially “free”.  Suppose you are evaluating this proposal, in conducting your study how would you evaluate the costs of the labor?  In your answer please also comment on the difference between “on-budget costs” and social costs.

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.      Reseachers at USC’s Keck School of Medicine found that the elevated levels of air pollution found within 82 yards — of busy freeways and surface streets caused an estimated 27,100 additional cases of childhood asthma in Los Angeles County” (  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?