MONDAY: 1 August 2022. Morning paper. Time Allowed: 3 hours.
Answer any FIVE questions. ALL questions carry equal marks. Do NOT write anything on this paper.
QUESTION ONE
1. Distinguish between “microeconomics” and “macroeconomics”. (4 marks)
2. State five advantages of a planned economic system. (5 marks)
3. Identify six factors that determine the total market demand for a product. (6 marks)
4. Describe five types of price elasticity of demand. (5 marks)
(Total: 20 marks)
QUESTION TWO
1. State the law of diminishing returns as applied in production functions. (2 marks)
2. Illustrate and explain the three stages associated with the law of variable proportions. (9 marks)
3. Using the Phillip’s curve, explain the relationship between unemployment and inflation. (5 marks)
4. Outline four factors that could lead to an increase in the cost of production in a firm. (4 marks)
(Total: 20 marks)
QUESTION THREE
1. Excel products limited deals in the production of a product branded “Excellent”.
The Average Revenue and Total Cost functions of “Excellent” are given by:
AR = 40 -10x
TC = X3 + 2X2 + 16X + 10
Where:
AR = Average Revenue function (Sh. “millions”)
TC = Total Cost function (Sh. “millions”)
X = Number of units of “Excellent” produced and sold.
Required:
The total profit function. (4 marks)
The maximum profit. (6 marks)
2. Explain six reasons why existence of monopolies is beneficial to an economy. (6 marks)
3. State four disadvantages of currency devaluation. (4 marks)
(Total: 20 marks)
QUESTION FOUR
1. Distinguish between “Gross Domestic Product” (GDP) and “Gross National Product” (GNP). (4 marks)
2. Summarise five assumptions of the circular flow of income model. (5 marks)
3. Identify seven factors that influence the size of a country’s national income. (7 marks)
4. State four problems associated with the income approach of Measuring National Income. (4 marks)
(Total: 20 marks)
QUESTION FIVE
1. Differentiate between “normal wages” and “real wages”. (4 marks)
2. Explain three tools of monetary policy used to control money supply in an economy. (6 marks)
3. Describe four conditions necessary for consumer rationality. (4 marks)
4. Summarise six benefits of adopting a labour intensive technique of production in developing countries. (6 marks)
(Total: 20 marks)
QUESTION SIX
1. Summarise six characteristics of money. (6 marks)
2. Explain four functions of commercial banks in an economy. (4 marks)
3. Outline four reasons why payment of interest to providers of loanable funds is justified. (4 marks)
4. Discuss three criticisms levelled against the classical theory of interest rate determination. (6 marks)
(Total: 20 marks)
QUESTION SEVEN
1. Identify four economic implications of high rate of rural to urban migration in developing countries. (4 marks)
2. Summarise six arguments against reliance on external donor funding for a country. (6 marks)
3. Outline five factors that contribute to underutilisation of resources in developing countries. (5 marks)
4. The following information relates to the consumption of a commodity Q in a certain market.
Price of Q Quantity demanded of Q
(Ksh.) (Units)
5 800
10 750
15 700
20 650
25 600
30 550
35 500
40 450
Required:
Determine the arc price elasticity of demand as price changes from Sh.25 to Sh.30. (3 marks)
Interpret your results in 4 (i) above. (2 marks)
(Total: 20 marks)
