UNIVERSITY OF JOHANNESBURG

SCHOOL OF ECONOMICS

ECONOMICS 3D: PUBLIC SECTOR ECONOMICS

ECO3DB3/EKN3D01

SUPPLEMENTARY EXAMINATION: JANUARY 2020

LECTURERS: PROF DIKGANG, MR MAHABIR and MR MUBENGA.

MODERATOR: DR NCUBE

Duration: 3 HOURS

TOTAL MARKS: 100

_____________________________________________________________________
Instructions:
1. Number of pages: 3
2. The paper consists of four (4) questions.
3. Each question carries 25 marks.
4. Answer ALL questions
5. Write neatly and legibly (We strongly discourage SMS style of writing)

1
Question 1 [25 Marks]

a) Discuss the proposition that Pareto optimality is a necessary but not enough
condition for a welfare maximum. (10 Marks)

b) Discuss Nozick’s entitlement theory and briefly consider its relevance for
South Africa. (10 Marks)

c) Discuss the efficiency implications of an inter-sectoral (or interpersonal)

policy of income redistribution. (5 Marks)

Question 2 [25 Marks]

a) Explain why a lump sum tax is used for comparing the excess burden of
different taxes. (5 Marks)

b) ‘A tax on cigarettes is inefficient since it is non-neutral.’ Do you agree?

Explain your answer by using indifference curves. (10 Marks)

c) If government needs to raise a certain amount of tax revenue from two goods
with different price elasticities of demand, what would your advice be to
government if the excess burden had to be minimized? How would your
answer differ if other tax criteria had to be considered as well? (10 Marks)

2
Question 3 [25 Marks]

a) Distinguish between annual wealth tax, property tax, and capital transfer tax.
(10 marks)

b) Who really pays the property tax on improvements? Explain by using partial
and general equilibrium analysis. (15 marks)

Question 4 [25 Marks]

a) Explain why the government should levy indirect taxes. (10 Marks)

b) Use a diagram to explain the distinction between the structural and the cyclical
components of budget balances and discuss the practical significance of this
distinction. (15 Marks)

END OF PAPER