# Demand, Supply and Determination of equilibrium – Questions and Answers

## TOPIC: Demand, Supply and Determination of equilibrium

QUESTION 1
April 2022 Question One B
Explain three exceptions to the law of demand. (6 marks)

QUESTION 2
December 2021 Question One A, B and C
(a) Using a suitable example, explain the term “composite supply”. (2 marks)
(b) Summarise five factors that cause persistent market disequilibrium in an economy.
(5 marks)
(c) Highlight six reasons why the demand of a commodity might not increase following a decrease in the price of the commodity. (6 marks)

QUESTION 3
December 2021 Question Seven B
Explain four causes of a demand-pull inflation in an economy. (8 marks)

QUESTION 4
August 2021 Question One A
Highlight four factors that determine the supply of a good or service. (4 marks)
Using appropriate diagrams, explain the difference between “a movement along a supply curve” and “a shift in a supply curve”. (8 marks)

QUESTION 5
August 2021 Question Two C
The government has given a subsidy on the consumption of commodity Y.
Using a diagram for illustration, explain the effect of the above action on market equilibrium for commodity Y. (5 marks)

QUESTION 6
August 2021 Question Four D
Given the demand function:

Required:
(i) Point elasticity of demand
When;
Price (P) = 10
Quantity (Q) = 75 (3 marks)
(ii) Interpret your results. (1 mark)

QUESTION 7
May 2021 Question One B
Explain using formulae, the difference between “arc elasticity” and “point elasticity” of demand. (4 marks)

QUESTION 8
May 2021 Question Two B
Identify four reasons why governments intervene with the operations of price mechanism.
(8 marks)
QUESTION 9
May 2021 Question Two C
Outline seven factors that influence the elasticity of supply of a commodity. (7 marks)

QUESTION 10
November 2020 Question one C
With the aid of a well labelled diagram, illustrate the effect of a simultaneous increase in the income of the consumer and increase in fuel prices. (4 marks)

QUESTION 11
November 2019 Question one D
The following equations are given:
Q=-10+6P …………………equation(i)
Q=20-4P……………………equation(ii)
Required:
(i) Giving reasons identify the demand function and the supply function. (2 marks)
(ii) Determine the equilibrium price and quantity. (4 marks)

QUESTION 12
May 2019 Question Two B
Summarise five factors that could lead to a leftward shift of the supply curve of a commodity. (5 marks)

QUESTION 13
May 2019 Question Three C
Discuss four applications of elasticity of demand in economic decision making.
(8 marks)

QUESTION 14
November 2018 Question One C
Enumerate five factors that determine the price elasticity of demand of a commodity.
(5 marks)

QUESTION 15
November 2018 Question Two A
With the aid of an appropriate diagram, explain the concept of “shortage” as used in market equilibrium. (4 marks)

QUESTION 16
November 2018 Question Two B
Discuss seven effects of price decontrol in an economy. (7 marks)

QUESTION 17
November 2018 Question Two C
The demand and supply functions of commodities x and y are given as:
Q_dx=4 —Py+0.5 Py
Q_dy=10+Px — Py
Q_sx= -3+4Px
Q_sy=-18+4 Py
Where:
Q_dx is the quantity demanded of x in thousands of units.
Q_dy is the quantity demanded of y in thousands of units.
Q_sx is the quantity supplied of x in thousands of units.
Q_syx is the quantity supplied of y in thousands of units.
Px is the price of x in thousands of shillings.
Py is the price of y in thousands of shillings.

Required:
(i) The equilibrium price and quantity of commodity x. (4 marks)
(ii) The equilibrium price and quantity of commodity y. (4 marks)
(iii) Explain the nature of relationship between commodity x and commodity y. (1 mark)

QUESTION 18
May 2018 Question three A
The demand of a certain product is represented by the following function:
Q=200+5P+ P^2
Where:
Q is quantity of the product
P is the price orate product

Required:
(i) Determine the point elasticity of demand at P Sh.20. (5 marks)
(ii) Interpret your result in (a) (i) above, (1 mark)

QUESTION 19
May 2018 Question Five A
Explain the term “partial equilibrium” as used in economics. (2 marks)

QUESTION 20
May 2018 Question Six A
With the aid of well labelled diagrams, distinguish between “price floors” and “price ceilings”. (8 marks)

QUESTION 21
November 2017 Question Two C
The data provided below relate to the quantities demanded of commodities A, B and C at different price levels:

Commodity A Commodity B Commodity C
Required:
(i) Elasticity of demand for commodities A, B and C. (6 marks)
(ii) Using the results obtained in (c) (i) above, advise the government on the commodity that should be considered for a tax increase. (1 mark)

QUESTION 22
November 2017 Question Seven A
Explain the difference between “inelastic demand” and “unitary elasticity of demand”.
(2 marks)
QUESTION 23
May 2017 Question Five E
The following information relates to the demand of a commodity in relation to the income of a consumer:

Income Demand
(Sh.) (Units)
15,000 16
29,000 7

Required:
The income elasticity of demand of the commodity. Interpret your result. (3 marks)

QUESTION 24
May 2017 Question Five B
Enumerate four exceptions to the law of supply. (4 marks)

QUESTION 25
May 2017 Question Four C
The demand and supply functions of a certain commodity are given as follows:
Qd = 300- 0.4p
Qs = 400+0.6p
Where:
Qd is the demand function.
Qs is the supply function.
p is the unit price of the commodity.

Required:
The equilibrium price and quantity of the commodity (4 marks)

QUESTION 26
May 2017 Question Three C
State three reasons why the demand curve slopes downwards (3 marks)

QUESTION 27
May 2017 Question Two A
With the aid of a well labelled diagram, describe the cobweb model as used in economics
(5 marks)
QUESTION 28
May 2017 Question Two C
(i) Explain the term “cross elasticity of demand.” (1 mark)
(ii) The following data relate to a consumer in a certain market:
Price of commodity x
(Sh.) Quantity consumed of commodity y
(Units)
12 80
16 100
20 120
24 140
28 160

Required:
The cross elasticity of demand. Comment on the relationship between commodity x and commodity y. (4 marks)

QUESTION 29
May 2017 Question One B
Enumerate five factors that determine the price elasticity of supply of a commodity.
(5 marks)
QUESTION 30
November 2016 Question One A
(i) Explain the term “price control” as used in economics. (l mark)
(ii) Highlight eight reasons for price controls in an economy. (8 marks)

QUESTION 31
November 2016 Question Two A
Enumerate six factors that could lead to a rightward shift of the supply curve.
(6 marks)
QUESTION 32
November 2016 Question Two C
Summarise eight factors that could affect own price elasticity of demand of a commodity.
(8 marks)

QUESTION 33
May 2016 Question One D
Explain how the concept of elasticity of demand guides economic decision making in the following areas:

(i) Government tax policy on household consumption. (2 marks)
(ii) Devaluation policy. (2 marks)
(iii) Price discrimination by a monopolist. (2 marks)

QUESTION 34
May 2016 Question Two C
A certain market for commodity x contains 1,000 identical consumers, each having a demand function given as:

QdX = 12-2px

The market contains 100 identical producers of commodity x, each with a supply function given by QsX = 20pX

Qd, is the quantity demanded of x.
QsX is the quantity supplied of x.
PX is the price of x.

Required:
(i) The market demand and market supply functions of commodity x. (4 marks)
(ii) Using indifference curve analysis, illustrate the effect of a government subsidy on commodity x to low income earners. (7 marks)

QUESTION 35
May 2016 Question Three B
Using a well labelled diagram, evaluate the effect of simultaneous increase in demand and decrease in supply on equilibrium price and quantity of a commodity. (5 marks)

QUESTION 36
November 2015 Question One A
With the aid of a diagram, describe the concept of unstable market equilibrium.
(5 marks)

QUESTION 37
November 2015 Question One B
“All giffen goods are inferior goods but not all inferior goods are giffen goods”. Using a relevant diagram, explain the above statement. (5 marks)

QUESTION 38
September 2015 Question Five C
Briefly explain the concept of elasticity of demand in the economic management policy decision making. (6 marks)

QUESTION 39
September 2015 Question Seven A
Briefly explain five factors that could affect the price elasticity of supply. (5 marks)

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