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Eae 313:Public Finance Question Paper

Eae 313:Public Finance

Course:Bachelor Of Economics

Institution: Kenyatta University question papers

Exam Year:2012

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2012/2013
FIRST SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF ECONOMICS

EAE 313:PUBLIC FINANCE
DATE:WEDNESDAY 5TH DECEMBER,2012
TIME:11.00AM-1.00PM

INSTRUCTIONS:
Attempt question ONE and any other TWO.
QUESTION ONE (Compulsory)
(a)Kenyatta university organization faces a marginal cost function given by MC=0.2Q and it faces a perfectly competitive price of Shs.40 for its output.
Required:
(i)Calculate the organization's competitive output level [3 marks]

(ii)Given that the organization is exerting a negative externality and its social
marginal cost of production is estimated to be MC=0.4Q.If market price remains the
same at Shs.40,calculate the socially optimal level of production for this
organization.[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 from Kenyatta
University Organization.[3 marks]

(v)Use illustration to present (i)-(iv) cases above [3 marks]
(b)Explain using illustrations and relevant examples (where applicable) the following economic concepts as used in public finance:
(i)Market failure [3 marks]
(ii)Fiscal externalities[3 marks]
(iii)Free-rider problem [3 marks]
(iv)Performance and program budgeting system [3 marks]
(v)Canon of tax elasticity [3 marks]

QUESTION TWO
(a)By help of an illustration,explain the principle of maximum social benefits as a measure of the size of the public sector. [10 marks]

(b)Explain any five limitations of the principle of maximum social benefits.[10 marks]

QUESTION THREE
a)Using relevant examples from an irrigation project,differentiate between the following pairs of benefits and costs:
(i)Real and Pecuniary [4 marks]

(ii)Direct and Indirect[4 marks]

(iii)Intermediate and Final [2 marks]

(b)By help of an illustration,explain shadow pricing in a market [10 marks]

QUESTION FOUR
(a)Using a diagram,explain the effects of tax incidences on market for goods(be sure to differentiate unit tax and advalorem tax)[10 marks]

(b)Citing Kenyan examples,discuss privatization mechanism [10 marks]

QUESTION FIVE
(a)Discuss the four public policy objectives(functions) of the government[10 marks]

(b)Explain using relevant examples why public debt is incurred [10 marks]

Eae 313:Public Finance Question Paper

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