Public Sector Economics Question Paper

Public Sector Economics

Course:Master Of Arts In Economics

Institution: Kenyatta University question papers

Exam Year:2009

EAE 505:
PUBLIC SECTOR ECONOMICS
DATE: MONDAY 30TH NOVEMBER 2009
TIME: 9.00 A.M. – 12.00 NOON

INSTRUCTIONS
Answer question ONE and any other two questions.
Time allowed three (3) hours

Question One
a)
Define and illustrate graphically the excess burden of taxation indicating precisely
how
it
can
be
measured.
(10
marks)

b)
State and derive Samuelson’s rule for the provision of the public good.
(8 marks)

c)
One of the methods that has been suggested for pricing public enterprise is the

marginal cost pricing rule. Explain this rule while stating its limitation.
(6 marks)

d)
On the basis of the limitations specified in (c) above, what are the possible alternative

pricing rules.

(6 marks)

Page 1 of 2
Question Two
a)
Using a diagram, explain how an externality may contribute towards inefficiency in
an
economy.

b)
Various solutions have been suggested for solving negative externalities. Discuss at
least
six
of
the
solutions.
(9
marks)

c)
Briefly explain the weaknesses of Coase theorem.

(5 marks)

d)
In developing economy such as Kenya, explain the causes of government failure.

(6 marks)

Question Three
a)
By defining Pareto efficiency, explain the three marginal conditions for optimal
resource
allocation
in
an
economy.
(8
marks)

b)
Giving relevant illustration in the Kenyan economy, discuss briefly four theories of
public
expenditure
growth.
(8
marks)

Question Four
a)
Giving relevant illustration(s), explain why centralization may be preferred to

centralization in a federal economy.
(8
marks)

b)
Explain the various principles governing tax assignment in a federal state.

(6 marks)

c)
Public sector economists have argued that a closed ended matching grant is better

than open ended grant. Discuss this statement using a well labeled diagram.

(6 marks)

Page 2 of 2

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