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ECS3704 - PAST EXAM PACK SOLUTIONS & BRIEF NOTES
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ECS3704PUBLIC ECONOMICS
PAST EXAM PACK QUESTIONS AND ANSWERS
(2020 – 2014)
2020 MAY/JUNE EXAM QUESTIONS AND ANSWERS
2020 SUMMARISED NOTES
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UNIVERSITY EXAMINATIONS [0763 468 675-UNISA
TUTOR]
EXAM PACK 2020 MAY/JUNE SOLUTIONS & OCTOBER NOV 2019 {& ALSO SELECTED PAST EXAM
QUESTIONS AND SOLUTIONS FROM 2010]
ECS3704
Public Economics
SOLUTIONS [WELL EXPLAINED WITH SOLUTIONS]
May/June 2020
QUESTION 1
A bread price subsidy to benefit the poor is economically inefficient”.
(a) Analyze this statement using a diagram. (Assume constant production costs.)
(b) Analyze with diagrams which other grants or transfers the South African government can use to
Relieve the plight of the unemployed, especially during the current coronavirus, COVID-19, situation?
(c) With the aid of a diagram, show the effect of an income transfer on work effort also.
(a) A subsidy is a direct or indirect payment to individuals or firms, usually in the form of a cash payment
from the government or a targeted tax cut. In economic theory, subsidies can be used to offset market
failures and externalities in order to achieve greater economic efficiency.
The reform of price subsidies may be necessary not only to improve efficiency, but also to facilitate pro-
poor economic growth and release resources for critical social services for the poor. At the same time,
increases in prices for basic commodities and petroleum products can be associated with real income
losses for the poor as well as political unrest in some cases
If supply is perfectly elastic (horizontal) – long run case
O demand curve shift (D0 to D1)
O quantity supplied increases (0Q0 to 0Q1)
O price unaffected
O no shifting of benefit
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(b) b) Analyze with diagrams which other grants or transfers the South African government can use to
Relieve the plight of the unemployed, especially during the current coronavirus, COVID-19, situation?
Effects of grants
Increases the incomes of the people
This will increasing the spending of goods and services in the economy
In the medium and long run this will increase the economic growth
Prices will also increase
(c) With the aid of a diagram, show the effect of an income transfer on work effort also.
Use fig C on the diagrams below
• AB combined budget and time constraint and equilibrium at E0 work CA
• income transfer... budget constraint shifts parallel to GF
• equilibrium at E1 on higher indifference curve I1
• work fewer hours = HA
• Due to income effect
• Income tax to finance transfer reduce opportunity cost of leisure
• Budget line swivels to KF
• New equilibrium E2 on lower indifference curve
• work effort even less = LA
• Due to income and (stronger) substitution effect of income tax
Graphs for question 1
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1©
QUESTION 2
A potential vaccine for the coronavirus, COVID-19, can be classified as a public good. (a) Debate this
in terms of health care provision in South Africa and use a table to compare the key characteristics of
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