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Welfare Economics Question Paper

Welfare Economics

Course:Bachelor Of Arts Economics

Institution: University Of Nairobi question papers

Exam Year:2011

MODULE II EXAMINATIONS 2010/2011
THIRD YEAR EXAMINATIONS FOR THE DEGREE OF BACHELOR OF ECONOMICS AND ECONOMICS AND STATISTICS.
XET 306 WELFARE ECONOMICS
28TH APRIL 2011
INSTRUCTIONS; ANSWER ANY THREE QUESTIONS. ALL QUESTIONS CARRY EQUAL MARKS

Question One
Draw a production possibility frontier (PPF) and a set of indifference curves representing the tastes of individuals in a society.

i) Show on this diagram what the efficient production point is and what price ratio will cause it to be achieved.

ii) Suppose now that this economy can trade with the rest of the world at a price ratio different from that which prevails domestically. If it continues to produce its initial output combination might this country trade with the rest of the world to improve the welfare at this new price ratio.

iii) How might the country specialize in production to take further advantage of the possibilities for the world trade?

Question Two

i) With the aid of diagrams discuss the externalities of consumption and production.

ii) Discuss the causes of market failures.

iii) Discuss the private and public solutions to externalities, which factors affect the public solutions to externalities.

Question Three

i) Discuss the question that the theory of distributive attempts to answer.

ii) Describe the theories of distributive justice exposing clearly how they try to answer the question in part (i) above.

iii) The provision of public goods cannot be entrusted on individuals and the government has therefore to intervene. Outline the reasons for government interventions.

Question Four
Write brief notes on the following concepts as used in welfare economics. Illustrate where necessary;

i) Compensation Valuation (CV) and Equivalent Variation (EV)
ii) Contingent Valuation Method (CVM)
iii) Non-Excludability and Non-Rivalry
iv) Welfare Cost Benefit Analysis
v) Moral Hazard and Adverse Selection

Welfare Economics Question Paper

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