# HBC 2205: INTERMEDIATE MICROECONOMIC THEORY Past Paper

W1-2-60-1-6
JOMO KENYATTA UNIVERSITY
OF
AGRICULTURE AND TECHNOLOGY
University Examinations 2014/2015
SECOND YEAR FIRST SEMESTER EXAMINATION FOR
THE DEGREE OF BACHELOR OF COMMERCE
HBC 2205: INTERMEDIATE MICROECONOMIC THEORY
DATE: AUGUST 2014 TIME: 2 HOURS
INSTRUCTIONS: ANSWER QUESTION ONE (COMPULSORY) AND ANY OTHER TWO QUESTIONS

Question One (30 Marks)

a) Explain the following terms as used in economics, microeconomics in particular:

(i) Normal Good (2 Marks)

(ii) Economic efficiency (2 Marks)

(iii) Revealed preference (2 Marks)

(iv) The Budget Line (2 Marks)

(v) Consumer surplus (2 Marks)

(vi) Sunk cost (2 Marks)

(vii) Cross elasticity (2 Marks)

(viii) Economies of scale (2 Marks)

(ix) Monopolistic competition (2 Marks)

(x) Moral Hazard and Adverse Selection (2 Marks)

b) What is Pareto Efficient Allocation? Is it possible to have a Pareto Efficient Allocation where someone is worse off than he, or she, is at an Allocation that is not Pareto Efficient? (10 Marks)
Question Two (20 Marks)

What is a budget line? And what is a budget set? How can we be sure that the consumer will be on the Budget Line and not anywhere else? (20 Marks)

Question Three (20 Marks)

Please explain what is meant by the concept of the market in economics. How would the existence of Asymmetry in Information affect the market? (20 Marks)

Question Four (20 Marks)

a) The following are heights of players in a certain game. The heights are given in inches:

82
78
77
84
79

Please calculate the variance and the Standard Deviation of the data, explaining what the variance and the standard deviation mean? Why is this particular deviation referred to the “Standard Deviation”?

b) The Standard Deviation as a Measure of Dispersion is said to satisfy a critical condition, that of CHEBYSHEV’S THEOREM. Please explain.
(20 Marks)

Question Five (20 Marks)

a) Per Capital Income in all countries is defined as Gross Domestic Product (GDP), divided by the country’s’ population and GDP is the value of all goods and services produced in the economy during a given time period, one year in almost all cases. Thus PCI is a straight forward average, the Arithmetic Mean. And so what could be the main weaknesses of PCI and do you think the Kenyan situation may actually be a clear case of the main weakness of the normal average, the Mean, the Arithmetic Mean?

b) What factors determine the shape of the Long – Run supply curve of an industry? (20 Marks)

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