Part I (60 points): Please briefly explain your responses.

1. "The Regional Development Council (RDC) has asked President Aquino to impose a ceiling on the prices of basic commodities in Northern Mindanao while families who were severely affected by flood brought about by Tropical Storm "Sendong" here and in Iligan City are slowly recovering." Do you see any problem with this strategy to help people? 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 subsidizing? Include a demand and supply sketch in your explanation.

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

4. Avocados have been found to be high in nutrients that help in fighting diseases such as prostate cancer, oral cancer, and breast cancer, eye diseases, heart disease, and stroke. Suppose the Avocado Growers Association of California argues that since avocados clearly provide significant positive externalities your government agency should provide subsidies for avocados. Please respond to their argument for funds from your budget.

5. What basis should you use for choosing an appropriate discount rate for present value calculations?

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.