Economics Revision kit Questions May 2016


(a) Outline four assumptions underlying consumer equilibrium. (4 marks)

(b) With the aid of a diagram, explain the production possibility frontier. (5 marks)

(c) Summarise five ways through which the government could influence the allocation of resources in a free market economy. (5 marks)

(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 a monopolist. (2 marks)
(Total: 20 marks)


(a) Differentiate between the following sets of terms as used in economics:

(i) “Structural unemployment” and “keynesian unemployment”. (2 marks)

(ii) “Narrow money” and “broad money”. (2 marks)

(b) Highlight five disadvantages of the monopoly market structure. (5 marks)

(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 QsX = 20pX

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


(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)
(Total: 20 marks)


(a) Discuss five policy measures that developing countries could adopt to reduce regional imbalances. (5 marks)

(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)

(c) Discuss five causes of the U-shaped long-run average cost curves of a firm. (10 marks)
(Total: 20 marks)


(a) Enumerate six barriers to occupational mobility of labour. (6 marks)

(b) Illustrate the close down price of a firm operating under perfect competition. (6 marks)

(c) Outline eight roles of commercial banks in boosting the economic development of a country. (8 marks)
(Total: 20 marks)


(a) Explain five factors that determine the macroeconomic level of consumption in an economy. (10 marks)

(b) The following data relate to the commodity and money markets of a hypothetical closed economy without government intervention, in millions of shillings:

C = 204 + 0.7Y
1 = 300-100r
MDT= 0.25Y
MDS= 248-200r
Ms = 600


C is the consumption function.
Y is the national income.
I is the investments function.
r is the rate of interest.
MDT is the precautionary and transactionary demand for money.
Mps is the speculative demand for money.
Ms is the money supply.

(i) Equilibrium level of interest rate. (7 marks)

(ii) Equilibrium level of national income. (3 marks)
(Total: 20 marks)


(a) Explain the term “balance of payments” as used in international trade. (2 marks)

(b) With the aid of an appropriate diagram, explain the condition under which a firm operating under oligopoly market structure would make losses in the short-run. (6 marks)

(c) Examine six roles of non-banking financial institutions in an economy. (6 marks)

(d) Describe three ways in which a government could use fiscal policy to stimulate economic growth. (6 marks)
(Total: 20 marks)


(a) Summarise five causes of inflation in developing countries. (5 marks)
(b) Highlight eight arguments in favour of international trade restrictions in a country. (8 marks)

(c) State seven economic goals of developing countries. (7 marks)
(Total: 20 marks)

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