PADM 5006 Practice Exam 1


Use separate sheets of paper as needed to answer. Please be sure to put your name on your answer sheets and the part of the exam you are answering 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 (60 points): Please briefly explain your responses.
1. Name at least 4 potential roles for government in a market economy and indicate for each what normative goals they may help a society achieve.

2. For about 200 years the National Weather Service has provided weather forecasts and now you can get their weather forecasts from the internet ( In what ways might a weather forecast be a public good (or near public good)? How does technology influence whether a good fits this category?

3. If you were thinking of imposing a sales tax on a good, why would you care about the price elasticity of demand for the good? What are some of the factors that influence price elasticity? (Hint: A classic policy error, made in 1991, was raising the taxes on yachts because the demand for yachts was found to be more elastic than originally expected.)

4. What’s the difference between a public good and a publicly provided good?

5. In Modesto citizens who sit on juries are paid $5 per day and receive free bus passes. Suppose that you are evaluating whether to have 12-person or 6- person juries. In conducting your study how would you evaluate the costs of the juries?

6. Give some examples of social insurance programs. What are some of the justifications for these types of programs?

Part II (40 points): Please explain your responses fully and show your work.
1. Many people are concerned about air quality in the San Joaquin Valley. Why might it be desirable for the government to be involved in this issue? (Hint: please relate this issue to the Coase Theorem.) How could public policy be used to reduce the level of pollution? What are some of the advantages and disadvantages of alternative approaches?

2. Suppose Mary uses BART to get to work at a cost of $1.25 per trip, but would ride a bus if the price were any higher. Her next best alternative is a bus that takes five minutes longer, but costs only $1. She makes 10 trips per week. The city is considering renovations of the BART system that would reduce the trip by 10 minutes, but fares would rise by $.40 per trip to cover the costs. The fare increase and reduced travel time both take effect in one year and last forever. The interest rate is 10 percent.
a. What is the approximate present value of the project’s benefits to Mary? What is the approximate present value of the project’s costs to Mary?
b. If there are 10,000 people like Mary, and 10,000 people who do not use any form of public transportation. What are the total benefits and costs of the project? What is the net present value of the project?
c. There’s another alternative project that would benefit the other 10,000 people each by $10 per year for two years. (Assume these benefits are received at the end of each of the years.) What is the present value of the project?
d. If you must choose between the projects, assuming both groups of people are weighted equally in the social welfare function, which project do you recommend?
e. What "distributional weight" would make you indifferent between the projects?