Economics Revision kit Questions May 2016

QUESTION ONE

(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)

QUESTION TWO

(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.

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)
(Total: 20 marks)

QUESTION THREE

(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)

QUESTION FOUR

(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)

QUESTION FIVE

(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

Where:

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.

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

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

QUESTION SIX

(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)

QUESTION SEVEN

(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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