Question 1:

Briefly (three or four paragraphs) give reasons for your answer.

(a) In studying the public sector, economists should use either positive or normative economics but not both.

(b) The Government intervenes in the market's allocation of resources only when it is not Pareto efficient.

(c) The Lorenz curve measures the degree of inequality in an economy.

(d) In a competitive market, if the supply is completely inelastic or if the demand curve is completely elastic, the tax is borne by consumers.

Question 2:

(i) What do economists mean when they say the economy is efficient? What basic conditions have to be satisfied if markets are to be efficient?

(ii) What are the conditions under which markets are not Pareto efficient?

Question 3:

(i) What is a compensated demand curve and how is it used to measure inefficiency?
(ii) What are the three approaches for making social choices when there is not a Pareto improvement?

Question 4:

"The Government alone can deal with the problems posed by externalities". Discuss.

Question 5:

(i) Describe the characteristics of an efficient tax system.

(ii) Why is it difficult to set up an efficient tax system in developing countries?

Question 6:

What are the consequences of government deficits? How deficits affect future generations?