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Eae 201: Economics Of Public Expenditure Question Paper

Eae 201: Economics Of Public Expenditure

Course:Bachelor Of Economics

Institution: Kenyatta University question papers

Exam Year:2012

KENYATTA UNIVERSITY
DEPARTMENT OF APPLIED ECONOMICS
EAE 201: ECONOMICS OF PUBLIC EXPENDITURE
CAT1 2012

Answer alll the questions

1. Suppose that a community consists of two groups who value the benefits of a publc good differentky. Group 1 has five individuals each with a marginal benefit given by MB1=6-0.4x and group two has five individuals each with a marginal benefit given by MB2=10-0.4x

(i) Clearly explain the charecterristics of public good

(ii) What is the socially optimum quantity of the puplic to be provided?

(iii) The government cannot raise taxes to finance provision of thr public good. The menbers of group two form a cooperative and agree to share the cost of provioding the public good. What quantity of the public good will they provide?

(iv) Explain the effects of the results in (ii) on the welfare of community menbers.

2. A perfectly competitive firm has a total cost functin given as TC=Q2+0.5Q
Consumers of the firm's product derive benefits from the good according to the functin MB=12.5-2Q. Production of the prodoct is associated with negative externality measered of approximate value of Ksh. 10 per unit

(i) What do you understand by the term negative externality in this case

(ii) Determine the level of otput of the firm when there is no government intervention

(iii) Suppose government intervinnes to ensure that tproduction is socially efficient, what would be the efficient level of out put

(iv) Explain the ways in which the goverment can ensure that the firm produces at the socially efficient level?

Eae 201: Economics Of Public Expenditure Question Paper

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