NFUMM

FACULTY Economics and Management Sciences

DEPARTMENT Economics

SUBJECT Public Economics

SUBJECT CODE CEUP 3871

DATE November 2015

DURATION 3 hours MARKS 100

SPECIAL EXAMINATION

Examiner: Dr. Bernie Zaaruka (University of Namibia)

Moderator: Prof. H. Siphambe (University of Botswana)

This question paper consists of 4 pages including this cover page

Instructions

. Read all instructions carefully before you start writing.

o This paper consists of two sections A and B.
o Answer only TWO questions in each section.
o Total marks for each question are indicated at the end of each
question.

UNIVERSITY OF NAMIBIA EXAMINATIONS

Section A

Please answer the following questions. Points are awarded for the succinctness,

consistency and clarity of your answer. Attempt only TWO questions from this section.

Question 1 [25 marks]

1.1 "Even if a public good is excludable, its private provision is likely to lead to
efficiency problems". Discuss. (10 marks)

1.2 Explain the key difference between positive economics and normative economics.
Give an example of both types of analysis. (10 marks)

1.3 Explain the Ricardian equivalence theorem and its implication. (5 marks)

Question 2 [25 marks]

2.1 Contingent valuation methodologies have recently been developed to assist

economists in measuring total value in the presence of externalities. What is the contingent
valuation method. (10 marks)

2.2 Explain the canons of taxation. (10 marks)

2.3 Define Public Finance. (5marks)

Question 3 [25 marksl

3.1 Describe the role of budget execution as a public expenditure management tool. (10

marks)

3.2 Explain the steps necessary to implement a cost-benefit analysis of a government

program. (10 marks)

.).J Explain four sources of non-tax government revenue. (5 marks)

Question 4 [25 marks]

4.1 Public television is funded in part by private donations, even though anyone with a
television set can watch for free. Can you explain this phenomenon in light of the free
rider problem. (10 marks)

4.2 What are the implications for a govemment budget deficit or a budget surplus. (10
marks)

4.3 Explain the Peacock-Wiseman Hypothesis on the state of public expenditure. (5 marks)

Section B

Please answer the following questions. tr'eel free to use graphs (as they apply) to help
elucidate your answer. Attempt only TWO questions from this section.

Question 5 [25 marks]

5.1 Using the partial equilibrium framework, explain who bears the burden of an ad valorem

tax levied on buyers if there is perfect competition and the demand is relatively inelastic .

(25 marks)

Question 6 [25marks]

6.1 Discuss in detail the five (5) effects of Public Expenditure on the Economy.
(25 marks)

Question 7 [25 marks]

7.1 Public goods are both nonrival and nonexclusive. Explain each of these terms and
show clearly how they differ from each other. (15 marks)

7.2 Demonstrate that a Lindahl equilibrium is indeed Pareto efficient. (10 marks)
Question 8 [25 marks]

Assume that scientific studies provide you with the following information concerning the
benefits and costs of sulphur dioxide emissions:

Benefits of abating (reducing) emissions: MB:500-20A

Costs of abating emissions: MC:200+5A

Where A is the quantity abated in millions of tons and the benefits and costs are given in
dollars per ton.

8.1 What is the socially efficient level of emissions abatement. (5 marks)

8.2 What are the marginal benefit and marginal cost of abatement at the socially
efficient level of abatement. (5 marks)

8.3 Explain the expected losses associated with the incorrect setting of a Pigouvian tax.
Under what circumstances should a Pigouvian tax be chosen. (15 marks)