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Xea 401/Cec 408: Environmental Economics Question Paper
Xea 401/Cec 408: Environmental Economics
Course:Bachelor Of Economics And Bachelor Of Arts
Institution: University Of Nairobi question papers
Exam Year:2013
University of Nairobi
First Semester Examinations 2013/2014
Fourth Year Examinations for the Degree of Bachelor of Economics and Bachelor of Arts
XEA 401/CEC 408: Environmental Economics
Date: January 7, 2014 Time: 9.00.A.M – 11.00.A.M
Instructions:
Attempt question ONE and any other TWO questions.
Question One (30 marks)
a) Comment briefly on the following statement: “Given that pollution is harmful, only a zero level of pollution is desirable.” (3 marks)
b) Consider a pollution problem involving a beer factory located on a river and a community whch uses the polluted water. The marginal damage (MD)/cost to the society is given by the function: MD = 20 + 0.1X
Where X is the amount of pollution. Suppose the firm’s marginal benefit (MB) from the pollution is:-
MB = 100 – 0.1X
i. Graph the marginal benefit and the marginal damage curves with pollution on the horizontal axis. (2 marks)
ii. How much will the beer factory pollute in the absence of any regulation or bargaining? (2 marks)
iii. What is the efficient level of pollution? (2 marks)
c) Explain why the traditional indicators of welfare (GDP and GNP) are inadequate as measures of sustainable development. (8 marks)
d) Discuss how the following demographic factors affect the environment. (6 marks)
i. Population size
ii. Population distribution
iii. Population composition
e) Assume that the demand curve for an environmental god is fully coincidental with the marginal social benefit function and can be described as:-
MSB = MPB = 12 – 3q
Where q refers to the quantity of the good.
Assume that the marginal private cost function can be described by MPC = q, and that the marginal social costs are always triple the marginal private costs.
i. Determine an equation for the marginal social costs (MSC) (1 mark)
ii. Graph the functions (1 mark) and algebraically determine:-
1) The competitive market level of output and price. (2 mark)
2) The optimal/efficient level of output and price from society’s point of view. (2 marks)
iii. What is the dead weight loss from these social costs?
Question Two (20 marks)
Suppose you are part of a research team valuing the conservation benefits of Mt. Kenya. Describe a reveal preference approach and a stated preference approach that could be used in this valuation exercise. Explain your arguments for and against each of the approaches you have selected. (20 marks)
Question Three (20 marks)
(i) According to the Coase Theorem, negotiation between two parties involved in an externality will eliminate pareto relevant externalities and result in an efficient solution if property rights are well specified. Using the example of a rsource developer who is polluting a nearby river with effluent and a community which utilizes the river water for drinking purposes, show that irrespective of who has the property rights, the outcome of the market solution is an efficient allocation of resources and the removal of the Pareto relevant-externality. (14 marks)
(ii) Discuss three short comings of the Coase Theorem. (6 marks)
Question Four ((20 marks)
The belief that trade has the potential to profoundly affect the environment has forced economists to assess a number of hypothesis. Discuss the following hypothesis/issues as they relate to trade and environment:
(i) Pollution Haven hypothesis. (5 marks)
(ii) Environmental Kuznets Curve (EKC) hypothesis. (6 marks)
(iii) North-South trade issue. (5 marks)
(iv) Porter’s Hypothesis. (4 marks)
Question Five (20 marks)
(a) Discuss the following approaches to sustainability:
(i) Pierce-Atkinson Measure (PAM). (4 marks)
(ii) Daly’s operational principles. (4 marks)
(iii) Non-Declining natural capital approach. (4 marks)
(b) Discuss sustainability according to the following perspectives:-
(i) The Neo-classical economics definition. (3 marks)
(ii) Materials balance approach. (3 marks)
(iii) The Sociologists’ perspective. (2 marks)
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