MAASAI MARA UNIVERSITY
REGULAR UNIVERSITY EXAMINATIONS
2015/2016 ACADEMIC YEAR
FOURTH YEAR SECOND SEMESTER
SCHOOL OF BUSINESS AND ECONOMICS
BACHELOR OF SCIENCE IN AGRICULTURA ECONOMICS & RESOURCE MANAGEMENT
COURSE CODE: ARE 442
COURSE TITLE: ENVIRONMENTAL ECONOMICS
DATE: 3RD MAY 2016 TIME: 11.00-13.00
INSTRUCTIONS TO CANDIDATES
1. Answer Question ONE and any other THREE questions
This paper consists of TWO printed pages. Please turn over
QUESTION ONE
(a) ‘Moving from an allocation that is not efficient to one that is efficient must represent a welfare improvement’ Discuss. (5mks)
(b) Illustrate the determination of the product-mix efficiency. (4mks)
(c) 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
(i) Determine the competitive market equilibrium (2mks)
(ii) Determine the competitive market price (1mk)
(iii) Calculate the social output equilibrium (3mks)
(iv) Calculate the social cost (1mk)
(d) Explain the criteria considered in designing pollution control instruments. (6mks)
(e) Discuss the environmental Kuznet Hypothesis (3mks)
QUESTION TWO
(a) According to Ronald Coase, the absence of well defined property rights is the cause of market failure. Discuss (6mks)
(b) Explain the characteristics of public goods (3mks)
(c) Illustrate the determination of efficient level of supply of a public good. (6mks)
QUESTION THREE
(a) Explain the effectiveness of command and control as means of regulating pollution. (6mks)
(b) 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:
(i) Graphically illustrate this policy, and explain the reason for it not being cost-effective. (5mks)
(ii) What cost condition is required for the government’s abatement allocation to be cost effective. (4mks)
QUESTION FOUR
(a) Food security or safety is essential for growing population in developing countries. Discuss (5mks)
(b) Discuss the effectiveness of using liability laws in abating pollution.
(6mks)
(c) Explain the characteristics of water resources. (4mks)
QUESTION FIVE
(a) Highlight the assumption of the Limits to Growth Model. (5mks)
(b) Graphically explain the model. (5mks)
(c) Discuss sustainable measures to reduce environmental costs.
(5mks
