UI{AM

UilIYIHSITY OF Hfiil!IBIA

FACULTY Economics and Management Sciences

DEPARTMENT Economics

SUBJECT Public Economics

SUBJECT CODE CEUP 3872

DATE OCTOBER 2016

DURATION 3 HOURS MARKS 100

REGULAR EXAMINATION
Examiner: Dr. Bernie Zaarul<a (University of Namibia)

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

This question paper consists of 5 pages including this cover page

Instructions

o Read all instructions carefully before you start writing.

o This paper consists of two sections A and B.
. Answer only TWO questions in each section.
. Total marks for each question are indicated at the end of each
question.
o The use of calculator is allowed where applicable.

UNIVERSITY OF NAMIBIA EXAMINATIONS

Draa af E
Question 4 [25 marks]

4.1 Distinguish between an aggregate and individualized externality and give an example of
each. What difference does it make to the government's attempt to correct for
externalities whether the externality is aggregate or individualized. (10 marks)

4.2 What are the market assumptions that are required for a well-functioning market economy

(10 marks)

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

Section B

Feel 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 Explain the various factors affecting the structure and composition of government
expenditure. (10 marks)

5.2 With an aid of graph discuss the Musgrave (1959) distribution branch of Public Finance
(10 marks)

5.3 What are Lindahl prices of public goods. (5 marks)

Question 6 [25marks]
Use supply and demand analysis to answer these questions.

6.1 (a) Under what conditions do consumers bear the full burden of an excise tax levied on

the producers. (10 marks)

(b) Under what conditions do producers bear the full burden of an excise tax levied on the

producers. (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 (i) Explain the expected losses associated with the incorrect setting of a Pigouvian tax.

(8 marks)
(ii) Under what circumstances should a Pigouvian tax be chosen. (7 marks)

THE END