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Eae313: Public Finance Question Paper

Eae313: Public Finance

Course:Bachelor Of Economics

Institution: Kenyatta University question papers

Exam Year:2012

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2011/2012
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF
ECONOMICS
EAE 313: PUBLIC FINANCE

DATE: Monday 2nd April, 2012

TIME: 11.00 a.m. – 1.00 p.m.
_______________________________________________________________________________
INSTRUCTIONS: Attempt Question ONE and any other TWO.

QUESTION ONE (COMPULSORY)
a)
Explain using illustration and relevant examples (where applicable) the following economic
concepts as used in public finance:

i)
Merit goods

[3 marks]

ii)
Social goods

[4 marks]

iii)
Free-rider problem

[3 marks]

iv)
Fiscal externalities

[3 marks]

v)
Zero base budgeting

[2 marks]
b)
ABC Ltd company faces marginal cost function by MC = 0.6Q and it faces a perfectly
competitive price of Shs.10 for its output.

Required

i)
Calculate the company’s competitive output level.

[3 marks]

ii)
Given that the company is exerting a negative externality and its social marginal cost of
production is estimated to be MC = 0.8q. If market price remains the same at Shs.10,
calculate the socially optimal level of production for ABC Ltd company. [3 marks]
iii)
If the government imposes an excise tax to bring about optimal level of production,
calculate the level of tax to be imposed in such a case.

[3 marks]
iv)
How much tax revenue would the government raise in this situation of ABC Ltd
company.

[3 marks]
v)
Highlight canons of a good tax system.

[3 marks]
Page 1 of 2

QUESTION TWO
By help of diagrams, explain the model of efficient allocation of resources in an economy.

[20 marks]
QUESTION THREE
“Privatization can be defined as transfer of ownership of state assets from the public bodies to private
enterprise or provision of services from public to private enterprise.” Discuss the case for and against
privatization in the economy, giving examples from your own country.

[20 marks]

QUESTION FOUR
a)
Various political, social and economic factors have contributed to the growth of public
expenditure and the growth of the public sector. Explain briefly at least five of these factors.

[10 marks]
b)
Highlight the consequences of public expenditure growth in an economy.
[10 marks]

QUESTION FIVE
a)
Explain, giving relevant examples, why public debt is incurred by a country.
[10 marks]
b)
Discuss the four public policy objectives (functions) of the government.
[10 marks]
……………………….

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Eae313: Public Finance Question Paper

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