TUESDAY: 5 April 2022. Afternoon paper. Time Allowed: 3 hours.
Answer any FIVE questions. ALL questions carry equal marks. Do NOT write anything on this paper.
QUESTION ONE
1. Discuss five challenges encountered by planned economic system in their transition to market oriented economies. (10 marks)
Explain three exceptions to the law of demand. (6 marks)
Outline four determinants of the elasticity of supply. (4 marks)
(Total: 20 marks)
QUESTION TWO
1. With the aid of appropriate diagrams, describe three properties of indifference curves. (9 marks)
2. With reference to the theory of consumer behaviour, highlight five assumptions of maximisation of utility. (5 marks)
3. Examine three applications of the concept of consumer surplus in economies. (6 marks)
(Total: 20 marks)
QUESTION THREE
1. Explain four assumptions underlying the theory of imperfect competition. (8 marks)
With an aid of a diagram, explain the long run equilibrium of a firm operating in imperfect competition. (6 marks)
2. Explain six factors that influence the mobility of labour as a factor of production. (6 marks)
(Total: 20 marks)
QUESTION FOUR
1. Assess five forms of economic integration as used in international trade. (10 marks)
2. The table below shows the total variable cost of a firm at different production levels:
Level of output Total variable cost
Sh.
0 0
1 60,000
2 110,000
3 140,000
4 150,000
5 150,000
6 170,000
7 210,000
8 260,000
The total fixed cost of the company is Sh.150,000.
Required:
1. The average cost of production for each output level. (4 marks)
2. The marginal cost of production for each output level. (4 marks)
3. The profit maximising level of output. (2 marks)
(Total: 20 marks)
QUESTION FIVE
1. The following table shows the level of National income (Y), Consumption (C), Investment (I), GovernmentbSpending (G), Exports (X) and Imports (M) of an utopian country for the years 2020 and 2021:
Year Y C I G X M
$ $ $ $ $ $ $
2020 80,000 ? 10,000 40,000 100,000 120,000
2021 90,000 56,000 15,000 34,000 110,000 ?
Required:
Compute the following:
The level of consumption in the year 2020. (3 marks)
The marginal propensity to consume. (2 marks)
The level of imports for the year 2021. (3 marks)
The marginal propensity to import. (2 marks)
2. Explain the term “per capita income“. (2 marks)
Enumerate four limitations of using per capita income as a measure of welfare. (4 marks)
3. Highlight four factors that limit the effectiveness of the multiplier in developing countries. (4 marks)
(Total: 20 marks)
QUESTION SIX
1. Describe three economic characteristics of enterprise as a factor of production. (6 marks)
Explain four importance of profits in a market economy. (4 marks)
2. Summarise four impacts of expansionary monetary policy in an economy. (4 marks)
3. Citing real life examples, distinguish between the following types of unemployment:
“Seasonal unemployment” and “casual unemployment”. (3 marks)
“Disguised unemployment” and “unproductive unemployment”. (3 marks)
(Total: 20 marks)
QUESTION SEVEN
1. With reference to economic growth and development, explain the term “potential growth”. (2 marks)
Examine six benefits of economic growth and development. (6 marks)
2. Summarise six demerits of minimum wage legislation in an economy. (6 marks)
3. Identify six strategies that the government may adopt to promote the informal sector in developing countries.
(6 marks)
(Total: 20 marks)
