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Econ 406: Environmental Economics Question Paper

Econ 406: Environmental Economics

Course:Bachelor Of Commerce

Institution: Kabarak University question papers

Exam Year:2009

INSTRUCTIONS:
1. Answer question ONE (Question ONE is compulsory) and any other TWO
questions.

QUESTION ONE
Distinguish the following paired terms as used in environmental economics.
a) Lithosphere and hydrosphere (4mks)
b) Private benefit and social benefit (4mks)
c) Resource function and amenity function. (4mks)
d) Social cost and private cost. (4mks)
e) Actual value and existence value. (4mks)
QUESTION TWO
a) Define environmental economics? (3mks)
b) Explain two fundamental characteristics of a marketable good. (6mks)
c) Explain four characteristics of well defined property rights. (6mks)
d) Discuss reasons why the market system fails.
(10mks)
e) Using Kuznets Curve discuss the expected relationship between economic growth
and environmental quality. (5mks)
f) Explain four ways a country can ensure sustainable development.
(18mks)
QUESTION THREE
Suppose the demand and supply functions of Petroleum in a country (being an
exhaustible
resource) is given as
Pd = 18000 – 0.025Q and Ps = 2000 + 0.015Q
Quantities are in metric tons and price is in US$.
Assume that the total stock available of petroleum for period I and II generation is
600,000.
a) Suppose allocation was to be left to the invisible hand, show through computation
the problem that will face the period II generation. (6mks)
b) Assuming a discount rate of 100% and that one period (one generation) spans 8
years solve for inter-temporal optimum allocation using a graph. (6mks)
c) Compute algebraically for the optimum allocation. (8mks)
d) From the graph show the gains that result from the inter-temporal optimum
allocation. (5mks)
QUESTION FOUR
a) Explain four ways through which policy makers in Kenya can ensure sustainable
development.
(16mks)
b) How can damages from an externality be measured directly? (9mks)
QUESTION FIVE
Suppose the demand and supply functions of a product X produced by PUTPUT Co. Ltd
firm is given as
Pd = 2000 – 0.001Q and Ps = 400 + 0.0015Q
While the pollution costs per unit from the production of X is C = 0.0005X.
a) Using a graph distinguish the social optimum allocation from the market
equilibrium. (9mks)
b) Solve for the actual amounts of output and price market equilibrium and the social
optimum allocation. (5mks)
c) What is the amount of tax rate necessary to enable an achievement of the social
optimum? (2mks)
d) Explain the advantages of marketable permits as a means of controlling for
pollution (9mks)

Econ 406: Environmental Economics Question Paper

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