Submitted by: Submitted by Yurixibata84
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Category: People
Date Submitted: 04/21/2011 02:56 AM
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 answer in (b) explain why the market fails to provide pure public goods.
[4 marks]
d. Briefly explain the problem of “free rider” which is associated with a public
good. [3 marks]
e. Explain why the provision of pure public goods by the government is justified.
[3 marks]
Question 3
Cost Benefit Analysis as a tool of project appraisal is often faced with a number of problems:
a. State and define any three cost- benefit criteria used for project appraisal. [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...