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Environmental Economics Question Paper
Environmental Economics
Course:Bachelor Degree In Economics
Institution: University Of Nairobi question papers
Exam Year:2011
University of Nairobi
First semester Examinations 2010/2011
Fourth Year Examinations for the Degree of Bachelor of Economics and Bachelor of Arts
CEC 408/XEA 401: Environmental Economics
Date: February 6, 2012 Time: 9.00-11.00a.m
Instructions:
This examination has FIVE Questions.
Answer THREE questions only. All questions carry equal marks.
Question One
Two firms can control emissions at the following marginal costs. MC1 = Kshs.200q1, MC2 = Kshs.100q2, where q1 and q2 are, respectively, the amount of emissions reduced by the first and the second firms. Assume that with no control at all, each firm would be emitting 20 units of emissions or a total of 40 units for both firms.
a) Compute the cost effective allocation of control responsibility of a total reduction of 21 units of emission necessary.
b) Compute the cost effective allocation of control responsibility if the ambient standard is 27ppm, and the transfer co-efficient that translate a unit of emissions into a ppm concentration at the receptor are respectively a1 = 2.0 and a2 = 1.0.
c) Assume that the National Environmental authority wanted to reach the objective in (a) by using an emission charge system.
i. What per unit charge should be imposed?
ii. How much revenue would the (NEA) collect?
Question Two
With reference to Coase’s article the problem of social cost; Journal of Law and economics (1960)
a) Does Coase say it does not matter whether the polluter pays or the victim pays? In which sense (if any) is this statement correct and in which way (if any) might the statement be incorrect?
b) Summarize the salient features of this article and its implications for pollution control policy.
c) Should victims of pollution be compensated (and if so under which circumstances and why)?
Question Three
a) What are the defining characteristics of a public good? Briefly list and explain these characteristics.
b) Outline the main advantages and disadvantages of market based policies, as compared to command and control policies.
c) Illustrate Pigou’s approach to correcting market externalities.
Question Four
These are three polluters in Nairobi’s industrial area. With the following profiles:
Polluter
Initial level of pollutions Marginal abatement cost (millions)
A 240 units Kshs.40
B 160 units Kshs.50
C 100 units Kshs.20
The city council of Nairobi wants to reduce the pollution in the city to 240 units. It gives each polluter 80 tradable pollution permits using a grand fathering approach.
a) Briefly discuss what is meant by grand fathering approach
b) Who buys the permit and how many do they buy?
c) Briefly explain why sellers and buyers are each willing to participate. What is the total cost of pollution abatement in this situation?
d) Suppose the permits could not be traded, how much higher would the cost of pollution be?
Question Five
A common theme in environmental economics is that environmental policies should be implemented so as to satisfy allocative efficiency. In theory meeting these goals seems relatively easy. With an environmental problem of your choice, discuss the problems that may arise in trying to achieve allocative efficiency.
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