For each question, choose one and only one answer.

3. The statement "Education is one of the few areas of study we covered in the course that does not require the use of public finance" is: (a) True (b) False (c) Uncertain. Suppose Kate has utility function U(C) = YE and income 1' = 31. She is an expected utility maximizer. With probability 0.9,. no adverse event happens and Kate's con- sumption would be C = Y = 81. With probability 0.1, an adverse event happens, costing Kate L = 7'2, and her consumption would be C = Y L. She could choose to buy an insurance such that, if the adverse event happens, the insurance pays the entire loss I. = T2. The premium Kate needs to pay regardless of whether the adverse event happens is P = 8.?5. Which of the following statements is true? (a) The insurance is actuarially fair. (13) The insurance is only a partial insurance (c) The insurance is a full insurance and Kate would buy it. (d) The insurance is actuarially unfair so Kate would not buy it. (e) The insurance is actuarially unfair but Kate would still bu}r it. (f) The insurance company would on average lose money selling such an insurance contract. 1. Which of the following is not considered as a rationale for the govemrnent to be involved in education? (a Productivity spillovers. (b Credit market failures. (c (:1 So that people could use education to signal their abilities to potential employ- ers. (e) Individual optimization failures due to lack of information. Familyr failures. } l l l 2. The statement "Crowding out occurs when public provision of a good substitutes for private provision fully or partially" is: (a) True (b) False (c) Uncertain 5. Lil},r and Lucy live alone in the same camp in the jungle and each has a trained dog. Their dogs are similar. Each dog could patrol the perimeter of their camp and harvest tropical fruit but not at the same time. Each dog could collect 3 kg of fruit for their owner each hour they are not patrolling or sleeping. Suppose the dogs need to sleep for 10 hours so each only has 14 hours to work. Currently, Lily's dog spends 6 hours patrolling in the morning and collects fruit for 3 hours; Lucy's dog spends 6 hours patrolling in the evening and collects fruit for the other 8 hours. Lily and Lucy are each currently willing to give up one hour of patrol for 2 kg of fruit. Which of the following statements best describe the situation? (a) The current time allocation of patrolling and fruit collecting is efficient. (b) Patrolling is a public good and being provided optimally. (c) Fruit collection is a private good and a socially optimal amount is being pro- duced. (d} A free-rider problem exists, resulting in an under-provision of camp patrolling. (e) None of the above. 6. Suppose a society has four citizens: citizen A, citizen B, Ananda Clinton and Dunno Drump. A presidential election is coming and Ananda Clinton and Dunno Drump are the only two candidates. Each candidate will for sure show up at the polling sta- tion on the election day and vote for herself or himself. Whichever candidate wins more votes would become the president and if there is a tie, Dunno Drump will win. Suppose both citizen A and citizen B think that it Ananda Clinton becomes the pres- ident, they would each have a utility of 1 in the next period; and if Dunno Drump is the president they would each have a utility of J? in the next period. Unlike in Aus- tralia, voting is voluntary in the above society. Showing up to vote has a utility cost of 1i'l because one could instead do somethings more fun. Which of the following statements best describes the above situation? {a} Voting has a private cost and only a private benefit. {b} Both citizen A and citizen B will vote because it would yield the best outcome for them. (c) Ananda Clinton will become the next president. (d) This is a positive externality from either citizen A's or citizen B's turnout to vote. (e) It is socially optimal for both citizen A and citizen B to show up and vote for Ananda Clinton. If f ) None of the above. 7. Which of the following statements is incorrect? (a) An empirical study finds that the introduction of EZ-Pass, which is an electronic toll collection system, reduced the incidences of premature birth to mothers living within 2 km of a toll plaza by about 10%. (b) Edlin and Karaca-Mandic (2006) find a positive correlation between traffic den- sity and auto insurance cost across American states. Their findings suggest that driving imposes an accident externalities on other drivers. (c) Coasian Bargaining does not work well in achieving efficient outcomes when the consumption or production externalities involve a large number of parties. (d) Chay and Greenstone (2005) find that the Clean Air Act Amendments had lit- tle impact on the house prices of nonattainment counties in the U.S. once they account for the national trend of house prices