Economics 463           Public Finance
Final Exam                                                        Fall 1995

Answer each of the following equally weighted questions.  Be sure to include clear intuitive
explanations of relevant terms and concepts.

1) True, false or uncertain.  Explain.  The excess burden of taxation can be seen as a violation
of the top level efficiency condition.

2)  True, false or uncertain.  Explain.  Under either a consumption tax or a wage tax two
consumers with the same wages over their lifetimes will pay the same taxes over their
lifetimes.   

3)  True, false or uncertain.  Explain.  If a good is non-rival in consumption then voluntary
provision of this good will fall below the efficient level.

4)  True, false or uncertain.  Explain.  Economic theory suggests that a plan to reduce the tax
on wage income to induce greater labor supply is doomed to failure.

5)  True, false or uncertain.  Explain.   The market for cruises to the Bahamas can be
represented by the following demand and supply curves:  Qd = 10000 - 20P, and 
Qs = -5000 + 30P.  A tax is imposed on the purchase of cruises at a value of 50 per cruise
ticket.   Consumers lose surplus equal to twice the surplus lost by producers. 

6)  True, false or uncertain.  Explain.   If bargaining costs are nil, any clear assignment of
property rights will, after bargaining/trading occurs, result in an efficient allocation of
resources.