ENVIRONMENTAL ECONOMICS

MJ

INSTRUCTIONS TO CANDIDATES

  1. Answer Question ONE and any other THREE questions

QUESTION ONE

  • ‘Moving from an allocation that is not efficient to one that is efficient must represent a welfare improvement’ Discuss. (5mks)
  • Illustrate the determination of the product-mix efficiency.                                                                         (4mks)
  • The supply and demand functions for a petroleum market is given as follows

P=10+0.075Q

P=42-0.125Q

Suppose that the Marginal External Cost is MEC=0.05Q

  • Determine the competitive market equilibrium (2mks)
  • Determine the competitive market price (1mk)
  • Calculate the social output equilibrium (3mks)
  • Calculate the social cost (1mk)

 

  • Explain the criteria considered in designing pollution control instruments.                                                                                     (6mks)
  • Discuss the environmental Kuznet Hypothesis (3mks)

 

QUESTION TWO

  • According to Ronald Coase, the absence of well defined property rights is the cause of market failure. Discuss (6mks)
  • Explain the characteristics of public goods (3mks)
  • Illustrate the determination of efficient level of supply of a public good.                                                                               (6mks)

 

 

 

QUESTION THREE

  • Explain the effectiveness of command and control as means of regulating pollution. (6mks)
  • Assume that there are two identified point sources discharging chemical wastes into a local water body. Currently, each source releases 30 units of effluent, for a total of 60 unit. To improve water quality, suppose that the government sets an aggregate abatement standard of 30units. The two polluters’ abatement cost functions are:

Point source 1: TAC1+10+A11; MAC1=2A1

Point Source 2: TAC2=20+2A22; MAC2=4A2

  • Graphically illustrate this policy, and explain the reason for it not being cost-effective. (5mks)
  • What cost condition is required for the government’s abatement allocation to be cost effective.    (4mks)

 

QUESTION FOUR

  • Food security or safety is essential for growing population in developing countries. Discuss (5mks)
  • Discuss the effectiveness of using liability laws in abating pollution.

(6mks)

  • Explain the characteristics of water resources. (4mks)

 

QUESTION FIVE

  • Highlight the assumption of the Limits to Growth Model. (5mks)
  • Graphically explain the model. (5mks)
  • Discuss sustainable measures to reduce environmental costs.

(5mks

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