533 words - 3 pages

SECTION A

1. Using well labeled diagrams on Pigouvian taxes and subsidies, show that distributional

consequences of the tax and subsidy differ. [6 marks]

b. i. “The inefficiencies associated with externalities can be linked to the absence of a market for

the externality for the relevant resource”. Discuss the given statement. [3 marks]

ii. What solution can be implemented by the government to overcome the problem in b), i?

[3 marks]

c. Use a well labeled diagram/graph to illustrate the analysis of a positive externality

[3 marks]

SECTION B

Question 2

a. What do you understand by a pure public good? [2 marks]

b. State any three characteristics of a pure public good and explain what each of them means.

[3 marks]

c. Given the ...view middle of the document...

[4 marks]

b. What are the admissibility requirements for a project appraisal in each one of the three

criteria (in a)? [5 marks]

c. What are the problems associated with the use of each one of the three as a guide for a

project selection? [3 marks]

d. Why is the choice of discount rate (low or high) important in project evaluation and

selection? [3 marks]

Question 4

a. State any 5 requirements of a good tax structure, which may be used as criteria

to appraise the quality of a tax system and briefly explain each one of them. [3 marks]

b. With reference to the equity principle of taxation, explain what is meant by “fairness”

[6 marks]

c. Equity deals with equality of sacrifice which is defined by the following three distinct

interpretations:

i. Equal absolute sacrifice [2 marks]

ii. Equal proportional sacrifice [2 marks]

iii. Equal marginal sacrifice [2 marks]

Use diagrammatical and algebraic tools to explain each one of them.

Question 5

a. The annual demand for beer in a hypothetical province is given by the following equation:

3

Q P d = 100000 - 4000

Where d Q is the quantity of bottles demanded per year and P is is the price per bottle.

The supply of beer is given by the equation Q P s = 6000

Suppose that a tax per beer bottle is levied on the price of beer received by sellers, using both

graphical and algebraic techniques show the impact of the tax on market equilibrium. Calculate

the excess of the tax, the amount f tax revenues collected, and the incidence of the tax between

the buyers and sellers. [9 marks]

b. The incidence of a unit tax is independent of whether it is levied on consumers or producers.

Do you agree or disagree. Use diagrams and algebra to illustrate your explanations.

[6 marks]

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