final_exam
FINAL EXAMPLE
PAD 505 ECONOMICS FOR PUBLIC ADMINISTRATORS
Answer All the Questions (Questions A and B)
Submit Your Hard Copy Solutions and Responses in One Single Word Document on CANVAS
before 6 p.m. on May 6, 2014
Include All Your Calculations in the Solutions
If you have not had 100% attendance in PAD 505, you may have to carefully read all the
lectures and the assigned chapters and seek extra help from Dr. Oyerinde during his office
hours before the Deadline day.
Grading Rubric
1. Minus 2 points for each wrong solution to Question A.
2. Minus 10 points for incomplete labeling of the required graph in Question A. Complete
labeling of a graph means the provision of the following based on the main text on
environmental economics by Callan and Thomas:
a. An appropriate title for the graph
b. The right name and the right equation on each curve/line in the graph
c. The right dollar number on each point generated by the curves/lines in the graph,
using the specified monetary unit. The unit may be hundreds or thousands dollars.
d. The right quantity number on each point generated by the curves/lines in the
graph, using the specified quantity unit. The unit may be quantity in hundreds or
thousands tons, boxes, or pounds.
3. Minus 10 points for the failure to provide the right graph where required in Question A.
4. Minus 10 points for wrong interpretation, where required in Question A.
5. Minus 5 points for a right interpretation that is lower in words than the required minimum
in Question A
6. Minus 5 points for each response that is lower in words than the required minimum in
Question B
7. Minus 10 points for the failure to answer a sub-question.
8. Minus 10 points for each use of Wikipedia and dictionaries.
Question A
Healthy Candy is located in the City of Atlanta and produces chocolate candies for international
consumption. In the course of candy production, Healthy Candy releases pollution as a negative
externality into the atmosphere of the City of Atlanta. Some of the pollution-related problems
include skin cancer, contamination of drinking water, breathing epidemics, birth defects, and
offensive odor. Sadly, Healthy Candy does not do anything to bear the costs associated with the
health and ecological problems Atlanta residents suffer. Interestingly, Healthy Candy believes
that Atlanta residents do not know about the problems and then leaves Atlanta residents to pay
for the health and ecological problems they suffer from the pollution generated in the production
of candies. What a rip-off against Atlanta residents!!! Healthy Candy smiles home with huge
profits. Healthy Candy’s customers worldwide feel satisfied with Healthy Candy’s products and
organize international events to praise the incredible quality of Healthy Candy’s products. Alas,
Atlanta residents apparently turn out to be victims in the process of production and consumption
of Healthy Candy’s products.
Suppose that you are a public administrator in the City Government of Atlanta, have trained in
Economics for Public Administrators from Clark Atlanta University, and are working with the
following marginal benefits and costs for Healthy Candy’s chocolate candies, where Q is
thousands of chocolate candy boxes and P is price per chocolate candy box:
MPB (Marginal Private Benefit) = 70 – 0.1Q (benefits to individual Atlanta consumers of
Healthy Candy’s products).
MPC (Marginal Private Cost) = 10 + 0.4Q (costs of producing candies by Healthy Candy).
MEB (Marginal External Benefit) = 0 (an external benefit is a positive externality: candy
production benefits to the City of Atlanta may include a healthy environment and healthy
residents in Atlanta. In the current context, external benefits are zero).
MEC (Marginal External Cost) = 0.1Q (an external cost is a negative externality: health and
ecological problems associated with the pollution generated by Healthy Candy that affect
Atlanta’s residents and environment).
1. With your understanding of Class Lectures, Required Textbooks, and Dr. Oyerinde’s Solutions
to Problem Set 2 (on CANVAS),
i. Find the competitive equilibrium, Qc and Pc.
ii. Find the efficient equilibrium, Qe and Pe.
iii. Show (a) the competitive equilibrium and (b) the efficient equilibrium in
the same graph that is properly labeled.
2. Suppose that Healthy Candy owns the rights to pollute the atmosphere of the City of
Atlanta and is negotiating with concerned public administrators in the City Government of
Atlanta to generate less pollution in the production of candies.
i. For the 110th chocolate candy box, determine the range within which a
payment would be acceptable to both Healthy Candy and the concerned
public administrators. Show in the graph for 1(iii) above (a) the 110th
chocolate candy box, (b) the price Healthy Candy would take, and (c) the
price the concerned public administrators would pay on behalf of Atlanta
residents.
ii. In 200-300 words, clearly explain the price range associated the 110th
chocolate candy box.
Question B
For each question in Question B, you must use at least one reference from among the required
textbooks and at least one scholarly reference from outside the required textbooks.
You must provide in-text citations and references based on the APA format.
You must not use Wikipedia and dictionaries as references.
1. In 200-400 total words, discuss how intergovernmental grants serve as a mechanism for
fiscal decentralization.
2. Fiscal illusion is good politics but bad economics. The opposite of fiscal illusion is bad
politics but good economics.
a. Explain fiscal illusion in 90-100 total words.
b. In 150-200 total words, discuss with at least three reasons why Obamacare (the
Affordable Care Act signed into law by President Barack Obama as a PUBLIC
PROVISION on March 23, 2010) is fiscal illusion.
c. In 150-200 total words, discuss with at least three reasons why Obamacare (the
Affordable Care Act signed into law by President Barack Obama as a PUBLIC
PROVISION on March 23, 2010) is not fiscal illusion.
d. In 100-150 words, discuss your own position on whether or not Obamacare is
fiscal illusion.
3. In 150-200 total words, identify and discuss at least five measures of wealth in the United
States.
4. In 150-200 total words, clearly explain at least four explanations of wealth inequality in
the United States.
5. In 1000-1500 total words, critically discuss the following in Rafael Reuveny’s
contribution on “International Trade and Public Policy: The Big Picture”, Chapter 17, in
Robbins, Donijo, Handbook of Public Sector Economics, (New York: Taylor and
Francis, 2005):
a. The scope of contemporary international trade.
b. Economic gains from trade.
c. Sources of comparative advantages
d. Trade protectionism policies.
e. Reasons for protectionism.
f. The mainstream economic argument for free trade.
g. Trade and international politics.
h. Trade and the environment.
i. Limits to growth
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