TUESDAY: 2 August 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. Explain five demerits of trade liberalisation in an economy. (5 marks)
2. Explain five reasons why income inequalities are a major policy issue in developing countries. (10 marks)
3. Highlight five factors that determine the transactionary and precautionary demand for money. (5 marks)
(Total: 20 marks)
QUESTION TWO
1. Identify five requirements for proper economic planning. (5 marks)
2. Discuss five criticisms of the liquidity preference theory. (10 marks)
3. Examine five disadvantages of trade unions in an economy. (5 marks)
(Total: 20 marks)
QUESTION THREE
1. Evaluate five causes of market failure in an economy. (10 marks)
2. Explain the term “money illusion”. (2 marks)
3. Assess four ways in which inflation affects the functions of money. (8 marks)
(Total: 20 marks)
QUESTION FOUR
1. Explain the following terms as used in elasticity analysis:
Price elasticity of demand. (2 marks)
Income elasticity of demand. (2 marks)
Cross elasticity of demand. (2 marks)
2. Explain four factors that influence the elasticity of demand. (8 marks)
3. With the aid of a well labelled diagram, explain the production possibility Frontier (PPF). (6 marks)
(Total: 20 marks)
QUESTION FIVE
1. Explain the term “indifference curve” as used in the theory of consumer behaviour. (2 marks)
Outline six application of the indifference curve analysis. (6 marks)
2. Explain the term “optimal size of the firm” as used in the theory of cost. (2 marks)
Using a well labelled diagram, illustrate the optimal size of the firm. (3 marks)
3. Explain the term “production function”. (2 marks)
Highlight five factors that influence the production function. (5 marks)
(Total: 20 marks)
QUESTION SIX
1. Outline five challenges faced by the agricultural sector in developing countries. (5 marks)
Suggest five policy measures that should be put in place by developing countries to help improve the agricultural sector. (5 marks)
2. The data provided below represent the national income model of a certain economy in billions of shillings:
Required:
The equilibrium level of:
National income. (5 marks)
Consumption. (3 marks)
Taxes. (2 marks)
(Total: 20 marks)
QUESTION SEVEN
1. Explain six roles played by foreign investment in least developed countries. (6 marks)
2. Highlight six policy measures that may be put in place to combat unemployment in developing countries. (6 marks)
3. A firm operating under perfect competition has the following demand and total cost functions:
P = 75 – 0.5Q
TC = 80 + 20Q
Where:
P = Price in shillings
TC = Total cost
Q = Quantity in units produced and sold
Required:
The level of output that would maximise profits. (5 marks)
The maximum profit. (3 marks)
(Total: 20 marks)
