UNIVERSIDAD DE MANILA

One Mehan Gardens, Ermita, Manila

College of Business Administration

Advanced Macroeconomics

QUIZ # 4

Name: GUNDRAN, KEVIN CARLOS Section: ECO22

*Don’t forget to indicate your full name on the space provided above.
*Failure to do so, five (5) points will be deducted from the total score.

ESSAY. (10 pts. each item)

1. Discuss the pros and cons of having a high cigarette excise tax.

PROS
- There are three arguments in favor of sin taxes. They discourage unhealthy behavior, they pay for
society's costs, and they’re popular with voters. Sin taxes discourage people from unhealthy
behavior. The tax increase to 60 PHP per pack has the potential to save 460,000 lives. Healthcare
costs due to tobacco-related diseases, especially for the poor, can be avoided or reduced. Revenue
generated from the bill will be earmarked to help fill the 62 billion PHP gap required to fund the
Universal Healthcare Act.

CONS
- Sin taxes aren't high enough to work. If states really wanted to eliminate the behavior, they would
raise the tax until it was high enough to discourage most people from picking up the habit, but not
high enough to encourage a black market. Sin taxes are subjective. Lawmakers decide that some
health issues, such as cigarette and alcohol addiction, should be taxed and others shouldn't. Other
so-called sins, such as opium and heroin addiction, aren't taxed but are simply declared illegal.
Other addictions, such as sugar, aren't taxed even though they cause health problems such as
diabetes.
2. Explain the difference between government spending and government purchases of goods and
services.

- Government expenditures is the sum of government purchases and government transfer

payments. Government purchases is federal state and local government purchases.
(Econmentor, 2014). Or government purchases are basically a part of government
expenditure. The purchases are usually made from government and private agencies. For
example, if government buys food from market for any purpose, then it is a government
purchase. Even money invested in colleges and universities is also counted under
government purchases. However, transfer payments such as unemployment benefits are
not government purchases.

3. Give two examples of public goods or services that you use.

- Public goods are those goods and services provided by the government because a market
failure has occurred, and the market has not provided them. Sometimes it is in our benefit
to not allow for a market provision. In the case of police, national defense, and public
education it can be argued that private provision of these services would be less desirable
for a variety of reasons. Our society, depending on locality, has provided such public
goods and services as public education, sanitation, police services, fire protection,
libraries, infrastructure maintenance (roads, bridges, communications networks, etc..) and
street lighting.