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Econ 428: Environmental Economics Year 2010 Question Paper

Econ 428: Environmental Economics Year 2010

Course:Bachelor Of Economics And Mathematics

Institution: Kabarak University question papers

Exam Year:2010

INSTRUCTIONS:
1. Question ONE (1) is Compulsory
2. Answer ANY OTHER TWO questions

QUESTION ONE - COMPULSORY
Distinguish between the following paired terms as used in environmental economics,
(i) Weak sustainability rule and strong sustainability rule. (4 marks)
(ii) Atmosphere and biosphere. (4 marks)
(iii) Local pollutant and global pollutant. (4 marks)
(iv) Net value and net present value. (4 marks)
(v) Private benefit and social benefit. (4 marks)

QUESTION 2
a) Explain how the sink function of the environment can be sustained. (12 marks)
b) Discuss how the resources function of the environment can be sustained.
(12 marks)

QUESTION 3
Suppose production functions of a fishing industry in lake Victoria is given as,
Qd = 2000E – 0.5E2
Further it is given that the price per unit catch is $10 and the cost per unit effort (E) is shs.2.

a) By use of a graph distinguish the profit maximizing output and the open access solution.
(3 marks)
b) Solve for the
(i) Maximum sustainable yield. (3 marks)
(ii) Profit maximizing solution. (5 marks)
(iii) Open access solution. (3 marks)

QUESTION 4
A firm engaged in the production of batteries is faced with the following demand and supply
functions.
Pd = 2000 – 0.001X and Ps = 500 + 0.002X
The population costs per unit resulting from its production is C = 0.001X
a) Using algebra, solve for the output and price at market equilibrium and the social
optimum allocation. (8
marks)
b) What amount of tax will be necessary to enable an achievement of the social optimum?
(3 marks)
c) Discuss why it is not practical to use Pigovian tax. (4 marks)

QUESTION 5
Suppose the demand and supply functions of petroleum is given as
Pd = 13,000 – 0.01Q and Ps = 500 + 0.015Q. Where price is in shillings and quantities are in
millions of barrels. Assume that the total stock available of petroleum for period I and II
generation is 700,000 million barrels.
a) Suppose allocation was to be left to the invisible hand, show through computation the
problem that will face the period II generation? (4 marks)
b) Assuming a discount rate of 7.5% and that one period (one generation) spans 10 years
solve for inter-temporal optimum allocation. (6 marks)
c) From the graph shown the gains that result from the inter-temporal
optimum allocation. (5 marks)

Econ 428: Environmental Economics Year 2010 Question Paper

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