MONDAY: 4 April 2022. Morning paper.                                                                                                  Time Allowed: 3 hours.

Answer any FIVE questions. ALL questions carry equal marks. Do NOT write anything on this paper.


  1. Explain the inductive method of economic analysis.                                                                                           (2 marks)
  2. Identify five characteristics of public goods.                                                                                                         (5 marks)
  3. Outline four uses of the production possibility frontier.                                                                                    (4 marks)
  4. Distinguish between “division of labour” and “specialisation of labour”.                                                     (4 marks)
  5. Summarise five disadvantages of a mixed economic system.                                                                           (5 marks)

(Total: 20 marks)


1. The demand function of a firm is given as:

P =    115 — 63Q

Where:  P is the price.

Q is the quantity demanded.


Derive the average revenue function.                                                                                                        (2 marks)

Calculate the price elasticity of demand given that the price is Sh.3.                                             (3 marks)


2. Explain five features of an oligopolistic market structure.                                                                                (5 marks)

3. State five characteristics of human wants.                                                                                                              (5 marks)

4. Outline five demerits of a monetary economy.                                                                                                      (5 marks)

(Total: 20 marks)


  1. Explain four types of money market instruments used in an economy.                                                        (8 marks)
  2. Outline four factors that contribute to the slow growth of capital markets in developing countries.     (4 marks)
  3. Discuss factors that influence business investment in a country.                                                                    (8 marks)

(Total: 20 marks)


1. Using a well labelled diagram, explain the shortrun profit maximising point for a firm operating in a perfect competition market.                                                                                                                                                       (6 marks)

2. Define the following terms as used in the theory of cost:

Opportunity cost.                                                                                                                                            (2 marks)

Explicit cost.                                                                                                                                                    (2 marks)

Implicit cost.                                                                                                                                                   (2 marks)

3. State four reasons why the demand curve is negatively sloped.                                                                      (4 marks)

4. Identify four reasons why the government might interfere with the price mechanism in an economy.                 (4 marks)

(Total: 20 marks)


1. Identify six measures that may be adopted to alleviate poverty in developing countries.                        (6 marks)

2.Explain six disadvantages of adopting export-promotion strategy in developing countries.                   (6 marks)

3.Define the term “credit inflation”.                                                                                                            (2 marks)

Enumerate six causes of demand-pull inflation.                                                                                  (6 marks)

(Total:   20 marks)


1.  Describe three methods of measuring national income.                                                                                     (6 marks)

2. The following data relates to the national income of Country X in billions of Shillings:

G      =   1,000

I       =    700

C      =    62  + 0.8Yd

T      =    10  + 0.2Y

X      =    40

M     =    70 + 0.1Y

Where:  G     =  Government expenditure

I       =  Investment

C      =  Consumption expenditure

T     =  Taxes

X     =  Exports

M    =   Imports

Yd   = Disposable income (Y-T)


The equilibrium consumption level of national income.                                                                    (3 marks)

The equilibrium national income.                                                                                                             (4 marks)

The marginal propensity to save.                                                                                                              (3 marks)

3. With reference to the theory of production, list four factors that influence a production function.      (4 marks)

(Total: 20 marks)


  1.  Explain five conditions that must hold for devaluation of a currency to be effective in developing countries. (5 marks)
  2. Describe six applications of indifference curve analysis in economics.                                                        (6 marks)
  3. Explain five effects of unemployment in developing countries.                                                                      (5 marks)
  4. Outline four assumptions of the marginal productivity theory of wage determination.                             (4 marks)

(Total: 20 marks)

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