TUESDAY: 5 December 2023. Afternoon Paper. Time Allowed: 3 hours.
This paper has seven (7) questions. Answer any FIVE questions. ALL questions carry equal marks. Do NOT write anything on this paper.
QUESTION ONE
1. Explain the term “economic planning”. (2 marks)
Argue FOUR cases in favour of government investment in the process of economic planning. (4 marks)
2. Examine FIVE roles of the central bank in an economy. (5 marks)
3. Describe FOUR characteristics of a perfectly competitive market. (4 marks)
4. Explain FIVE causes of rising foreign debt in least developed countries. (5 marks)
(Total: 20 marks)
QUESTION TWO
1. Highlight SIX causes of deficits in the balance of payment. (6 marks)
2. With the aid of a well labelled diagram, illustrate the substitution and income effect of:
Inferior good. (5 marks)
Normal good. (5 marks)
3. State FOUR product pricing strategies. (4 marks)
(Total: 20 marks)
QUESTION THREE
1. Discuss FOUR sets of economic reforms that the Bretton Woods financial institution may impose on a country. (8 marks)
2. Describe SIX roles of industry in economic development of the least developed countries. (6 marks)
3. Outline FIVE reasons why urban unemployment is a major policy issue in developing countries. (6 marks)
(Total: 20 marks)
QUESTION FOUR
1. Explain the term “optimal size of the firm”. (2 marks)
List SIX factors that determine the cost behaviour of a firm. (6 marks)
2. Differentiate between an “Engel curve” and “Income consumption curve” as used in consumer
behaviour analysis. (4 marks)
Using a well labelled diagram, derive the Engel Curve for a normal good using the indifference curve
analysis. (8 marks)
(Total: 20 marks)
QUESTION FIVE
1. Explain FOUR assumptions of the law of demand. (8 marks)
2. The demand function for a certain commodity is given as follows:
Q = 110 – 3P + 75 Where; Q = Quantity demanded
2P2 P = Price
Required:
Point price elasticity of demand when the price is Sh.15. (4 marks)
Interpret your results in (b) (i) above. (2 marks)
3. Outline SIX demerits of delocalisation of industries. (6 marks)
(Total: 20 marks)
QUESTION SIX
1. Describe THREE steps involved in the scientific method of studying economics. (6 marks)
2. Explain the term “dead weight loss” as used in economics. (3 marks)
3. With the aid of a diagram, explain why the marginal revenue curve lies below the average revenue curve under monopoly. (5 marks)
4. Summarise SIX factors that may determine wages and salaries in an economy. (6 marks)
(Total: 20 marks)
QUESTION SEVEN
1. State FOUR factors that could influence the price of land as a factor of production. (4 marks)
2. A consumer has a fixed income of Sh.12,000 which must be spent entirely on bread and alcohol. The price per unit of bread is Sh.50 while the price per unit of alcohol is Sh.200.
Required:
Determine the marginal rate of substitution of alcohol for bread. (2 marks)
Suppose the level of consumer’s income is subjected to a housing levy of 1.5% while the price per unit
of bread and the price per unit of alcohol increases by 10%, determine the marginal rate of substitution
of bread for alcohol. (2 marks)
3. Using an appropriate diagram, explain how a fiscal policy may be used to control a deflationary gap in an economy. (6 marks)
4. With the help of a well-labelled diagram, explain the relationship between the “long-run average cost curve” and the “short-run average cost curve”. (6 marks)
(Total: 20 marks)
