Demand, supply and determination of equilibrium
Unit: Economics
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April 2025
11 Questions
Question 2a
Outline FOUR assumptions underlying consumer rational behavior.
Question 2b
Highlight SIX features of monopolistic competitive firms.
Question 3a
Given the demand function:
\(Q = 350 – 1.5Q + {\large \frac{70}{p^2}}\)
Required:
(i) Determine the point elasticity of demand when price is Sh.10.
(ii) Interpret your results.
Question 3c
Outline FIVE limitations of indifference curve analysis.
Question 4a
Identify FIVE conditions that are necessary for effective use of price discrimination in an economy.
Question 4c
Outline FIVE advantages of a perfectly competitive market.
Question 5c
Using an appropriate diagram, illustrate the relationship between marginal product curve (MP) and average product
curve (AP).
Question 5d
State SIX factors that may influence price elasticity of demand
Question 6a
Distinguish between “variable costs” and “fixed costs”.
Question 6c
Outline FIVE determinants of supply in an economy.
Question 7d
Identify FOUR factors that might influence the price of labour as a factor of production.
December 2024
12 Questions
Question 2b
Identify SIX factors that determine the price of labour as a factor of production.
Question 2d
Highlight FOUR assumptions of indifference curve analysis.
Question 3a
Explain SIX causes of wage difference between the “industrial occupation” and the “agricultural occupation”.
Question 3c
Explain FOUR applications of the concept of equilibrium in economics.
Question 3d
Propose FOUR criticisms of the discounted marginal productivity theory.
Question 4b
With the aid of a well labelled diagram, explain the relationship between the marginal product curve and the
average product curve.
Question 5a
Using a well labelled diagram, differentiate between “gently sloped supply curve” and “steeply sloped supply
curve”.
Question 5b
Highlight SIX drawbacks of collective bargaining agreement in relation to trade unions.
Question 5c
Outline FOUR features of monopolist competition.
Question 6a
(i) Explain the concept of consumer sovereignty.
(ii) Enumerate FOUR factors that limit consumer sovereignty.
Question 6c
Explain the application of price elasticity of demand in making decision by:
(i) Government.
(ii) Producers.
(iii) Consumers.
Question 7b
The demand function for a firm is given as:
P = 200 – 40Q
Determine:
(i) Total revenue function.
(ii) Average revenue function.
(iii) Marginal revenue function.
August 2024
6 Questions
Question 1a
(i) Explain the concept of “price ceiling”.
(ii) Discuss THREE advantages of setting price ceilings.
Question 1b
Describe FOUR types of labour mobility.
Question 2a
Using a well labelled diagram, illustrate the regressive supply curve of labour.
Question 2b
Explain THREE exceptions to the law of diminishing marginal utility.
Question 6c
Using a well labelled diagram, illustrate the long-run equilibrium of a monopoly firm.
Question 7c
A firm operating in a perfectly competitive market has the demand and total cost functions represented by the
following:
P = 40 – 60Q
TC = 100 + 50Q – 80Q2
Where;
P = Price
Q = Quantity
TC = Total cost
Determine:
(i) Average fixed cost function.
(ii) Average variable cost function.
(iii) Marginal cost function.
April 2024
12 Questions
Question 1a
Highlight FOUR factors that cause a downward shift in the demand curve.
Question 1b
Explain THREE reasons for the fluctuation of commodity prices in the agricultural sector.
Question 1d
State FOUR disadvantages of a perfectly competitive market.
Question 2c
(i) Explain the term “consumer equilibrium”.
(ii) Using a well labelled diagram of indifference curves, illustrate the consumer’s equilibrium point.
Question 3c
Using an appropriate diagram, explain FOUR properties of indifference curves.
Question 4b
Examine FOUR reasons why the demand curve is negatively sloped.
Question 4c
Using a well labelled diagram, differentiate between “movements along a supply curve” and “shifts in supply
curve”.
Question 5c
With the help of a diagram, explain the relationship between the marginal cost curve and the average total cost
curve.
Question 6b
Ubromaxtek University has opened Satellite Campus in a neighbouring country. It has been estimated that the
annual fixed cost of the Satellite Campus is USD 48,900. The fees to be charged per student and the variable cost
per unit are USD 1,025 and USD 837 respectively.
Required:
(i) Determine the number of students that Satellite Campus should enrol in order to break-even.
(ii) Using the level of enrolment in (b) (i) above, calculate the expected level of profits.
Question 6c
State FIVE circumstances under which price control is necessary.
Question 7a
(i) Explain the term “producer equilibrium” as used in economics.
(ii) Highlight FIVE assumptions of producer surplus.
Question 7b
With the help of a well labelled diagram, explain the stages of the law of diminishing returns.
December 2023
13 Questions
Question 1c
Describe FOUR characteristics of a perfectly competitive market.
Question 2b
With the aid of a well labelled diagram, illustrate the substitution and income effect of:
(i) Inferior good.
(ii) Normal good.
Question 2c
State FOUR product pricing strategies.
Question 4a
(i) Explain the term “optimal size of the firm”.
(ii) List SIX factors that determine the cost behaviour of a firm.
Question 4b
(i) Differentiate between an “Engel curve” and “Income consumption curve” as used in consumer
behaviour analysis.
(ii) Using a well labelled diagram, derive the Engel Curve for a normal good using the indifference curve
analysis.
Question 5a
Explain FOUR assumptions of the law of demand.
Question 5b
The demand function for a certain commodity is given as follows:
\(Q = 110 – 3P + {\large \frac{75}{2P^2}}\)
Where;
- Q = Quantity demanded
- P = Price
Required:
(i) Point price elasticity of demand when the price is Sh.15.
(ii) Interpret your results in (b) (i) above.
Question 6b
Explain the term “dead weight loss” as used in economics.
Question 6c
With the aid of a diagram, explain why the marginal revenue curve lies below the average revenue curve under
monopoly.
Question 6d
Summarise SIX factors that may determine wages and salaries in an economy.
Question 7a
State FOUR factors that could influence the price of land as a factor of production.
Question 7b
A consumer has a fixed income of Sh.12,000 which must be spent entirely on bread and alcohol. The price per unit of bread is Sh.50 while the price per unit of alcohol is Sh.200.
Required:
(i) Determine the marginal rate of substitution of alcohol for bread.
(ii) Suppose the level of consumer’s income is subjected to a housing levy of 1.5% while the price per unit of bread and the price per unit of alcohol increases by 10%, determine the marginal rate of substitution of bread for alcohol.
Question 7d
With the help of a well-labelled diagram, explain the relationship between the “long-run average cost curve” and
the “short-run average cost curve”.
August 2023
6 Questions
Question 2c
Using a well labelled diagram, illustrate the shutdown point of a firm operating under perfect competition.
Question 4a
With the aid of a diagram, explain the marginal efficiency of capital.
Question 4b
The demand and total cost function of a firm operating under perfect competition are given as:
P = 45 – 4Q
TC = 44 + 15Q
Where;
P represents price
Q represents quantity
TC represents total cost
Required:
(i) Determine the sufficient condition for profit maximisation of the firm.
(ii) Determine the firm’s price for profit maximisation.
Question 5c
Examine THREE factors that influence the elasticity of supply.
Question 7a
Using an appropriate diagram in each case, explain the four properties of isoquants.
Question 7b
Analyse THREE benefits of elasticity of demand in economic decision making.
April 2023
8 Questions
Question 1a
Identify SIX conditions necessary for price discrimination under monopoly.
Question 1d
Highlight FOUR assumptions of indifference curve analysis.
Question 5b
With the aid of a well labelled diagram, explain the law of diminishing marginal utility.
Question 5c
Enumerate SIX factors that influence the cost behaviour of a manufacturing firm.
Question 6a
The following information relates to the quantity demanded of commodity X at different prices and income
levels of a consumer:
| Quantity | Price (Sh.) | Income (Sh.) |
| 1,200 | 160 | 60,000 |
| 1,000 | 180 | 40,000 |
(i) Determine price elasticity of commodity X and interpret your answer.
(ii) Determine income elasticity of commodity X and interpret your answer.
Question 7a
(i) Differentiate between a “stable equilibrium” and an “unstable equilibrium”.
(ii) With the aid of a well labelled diagram, illustrate an unstable equilibrium.
Question 7b
Identify SIX criticisms of the marginal productivity theory of wage determination.
Question 7c
List SIX reasons why mobility of factors of production is important.
December 2022
9 Questions
Question 1d
Outline FIVE ways in which a government could interfere with the price mechanism.
Question 2c
Outline FIVE factors that determine the level of demand in an economy.
Question 3a
Enumerate FIVE factors that could limit consumer sovereignty.
Question 3b
With the aid of a well labelled diagram, explain the THREE stages of production according to the law of
diminishing marginal returns.
Question 3c
Explain THREE limitations of the consumer price index.
Question 4a
Using a well labelled diagram, distinguish between “price floor” and “price ceiling”.
Question 5d
Outline FOUR features of isoquant curves.
Question 6b
The demand and total cost function for a certain firm are represented as follows:
P = 400 – 4q
TC=q2+10q+30
Where:
- P is the price
- TC is the total cost
- q is the quantity
Required:
(i) The marginal cost function.
(ii) The marginal revenue function.
(iii) The average variable cost function.
(iv) The profit maximising level of output.
(v) The maximum profit.
Question 7c
(i) Explain the law of variable proportions.
(ii) Enumerate FOUR assumptions underlying the law of variable proportions.
August 2022
9 Questions
Question 2c
Examine five disadvantages of trade unions in an economy.
Question 3a
Evaluate five causes of market failure in an economy.
Question 4a
Explain the following terms as used in elasticity analysis:
(i) Price elasticity of demand.
(ii) Income elasticity of demand.
(iii) Cross elasticity of demand.
Question 4b
Explain four factors that influence the elasticity of demand.
Question 4c
With the aid of a well labelled diagram, explain the production possibility Frontier (PPF).
Question 5a
(i) Explain the term “indifference curve” as used in the theory of consumer behaviour.
(ii) Outline six application of the indifference curve analysis.
Question 5b
(i) Explain the term “optimal size of the firm” as used in the theory of cost.
(ii) Using a well labelled diagram, illustrate the optimal size of the firm.
Question 5c
(i) Explain the term “production function”.
(ii) Highlight factors that influence the production function.
Question 7c
A firm operating under perfect competition has the following demand and total cost functions:
P = 75 – 0.5Q
TC = 80 + 20Q
Where:
P = Price in shillings
TC = Total cost
Q = Quantity in units produced and sold
Required:
(i) The level of output that would maximise profits.
(ii) The maximum profit.
April 2022
9 Questions
Question 1b
Explain three exceptions to the law of demand.
Question 1c
Outline four determinants of the elasticity of supply.
Question 2a
With the aid of appropriate diagrams, describe three properties of indifference curves.
Question 2b
With reference to the theory of consumer behaviour, highlight five assumptions of maximisation of utility.
Question 2c
Examine three applications of the concept of consumer surplus in economies.
Question 3a
(i) Explain four assumptions underlying the theory of imperfect competition.
(ii) With an aid of a diagram, explain the long run equilibrium of a firm operating in imperfect competition.
Question 3b
Explain six factors that influence the mobility of labour as a factor of production.
Question 4b
The table below shows the total variable cost of a firm at different production levels:
| Level of output | Total variable cost Sh. |
| 0 | 0 |
| 1 | 60,000 |
| 2 | 110,000 |
| 3 | 140,000 |
| 4 | 150,000 |
| 5 | 150,000 |
| 6 | 170,000 |
| 7 | 210,000 |
| 8 | 260,000 |
The total fixed cost of the company is Sh.150,000.
Required:
(i) The average cost of production for each output level.
(ii) The marginal cost of production for each output level.
(iii) The profit maximising level of output.
Question 6c
(i) Describe three economic characteristics of enterprise as a factor of production.
(ii) Explain four importance of profits in a market economy.
Pilot December 2021
9 Questions
Question 1a
(i) Explain the concept of “consumer sovereignty” as applied in economic analysis.
(ii) Highlight five factors that limit consumer sovereignty.
(iii) ABC limited has been incurring losses over the last few years despite its monopolparastatal status.
Using a well-illustrated diagram, demonstrate how a monopolist can make losses in the short-run.
Question 2a
Highlight the characteristics of public goods.
Question 2b
The following economic functions have been derived from the Kenya Coffee Millers Limited:
Qa=3p2−4p
and
Qb=24−p2where p represents price and Q is quantity
Required:
(i) Which of the two functions represents a demand curve and supply curve. Cite relevant economic reasons.
(ii) Determine the equilibrium price and quantity in the market
(iii) Explain, with the aid of a diagram, the effect on the demand and supply functions indicated in (a) above of
a simultaneous decrease in cost of inputs and a decrease in the price of a substitute good.
Question 3a
Explain the term ‘Price control’.
Question 3b
Explain the circumstances under which price control is considered necessary.
The utility total function and other relevant variables related to a consumer are given as follows:
U=20X−4Z2+40Z−X2
Income Y = Kshs. 48
Price of X (Px) = Kshs.2
Price of Z(Pz) = Kshs.4
Required:
(i) Determine the equilibrium quantities of commodities x and z using the cardinalist approach to consumer
behavior.
(ii) Outline the axioms of the cadinalist approach to consumer behavior.
Question 4a
Explain the importance of elasticity of supply in decision making.
Question 5a
Explain the meaning of mobility of factors of production and highlight the significance of factor mobility.
Question 6a
Explain the term ‘Oligopoly’?
Question 6b
Analyse the challenges facing the formation of “cartels” in the oligopoly market structure.
December 2021
7 Questions
Question 1a
Using a suitable example, explain the term "composite supply"
Question 1b
Summarise five factors that cause persistent market disequilibrium in an economy
Question 1c
Highlight six reasons why the demand of a commodity might not increase following a decrease in the price of the commodity
Question 2b
Using indifference curve analysis, derive the engel curve of a normal good.
Question 2c
State six conditions that are necessary for effective price discrimination by a monopolist.
Question 4c
The marginal cost function of a certain firm is given by:
MC = 6Q + 4
Where;
MC is the marginal cost function
Q is the level of output
Required:
(1) The total cost function.
(ii) The average fixed cost function.
(iii) The average variable cost function.
(iv) The level of output that would minimise the average variable cost.
(v) The level of output that would minimise the average total cost.
MC = 6Q + 4
Where;
MC is the marginal cost function
Q is the level of output
Required:
(1) The total cost function.
(ii) The average fixed cost function.
(iii) The average variable cost function.
(iv) The level of output that would minimise the average variable cost.
(v) The level of output that would minimise the average total cost.
Question 6a
Discuss five differences between monopoly and monopolistic market structures
August 2021
7 Questions
Question 1a
(i) Highlight four factors that determine the supply of a good or service.
(ii) Using appropriate diagrams, explain the difference between "a movement along a supply curve" and "a shift in a supply curve".
(ii) Using appropriate diagrams, explain the difference between "a movement along a supply curve" and "a shift in a supply curve".
Question 2a
Explain the term "marginal factor cost".
Question 2b
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.
Using a diagram for illustration, explain the effect of the above action on market equilibrium for commodity Y.
Question 4a
Identify three uses of consumer surplus.
Question 4d
Given the demand function:
Quantity (Q) = 40 + 15Q - 2Q2 + 10 / Q
Required:
(i) Point elasticity of demand
When;
Price (P) = 10 , Quantity (Q) = 75
(ii) Interpret your results.
Quantity (Q) = 40 + 15Q - 2Q2 + 10 / Q
Required:
(i) Point elasticity of demand
When;
Price (P) = 10 , Quantity (Q) = 75
(ii) Interpret your results.
Question 5b
Collusive practices may be undermined by price wars.
Assess three benefits that might accrue to consumers as a result of price wars by firms.
Assess three benefits that might accrue to consumers as a result of price wars by firms.
Question 6a
(i) Explain the term "price discrimination".
(ii) Using examples in each case, examine three types of price discrimination.
(ii) Using examples in each case, examine three types of price discrimination.
May 2021
5 Questions
Question 1b
Explain using formulae, the difference between "arc elasticity" and "point elasticity" of demand.
Question 2b
Identify four reasons why governments intervene with the operations of price mechanism
Question 2c
Outline seven factors that influence the elasticity of supply of a commodity
Question 3a
Using indifference curve analysis, demonstrate how an individual's equilibrium point is attained.
Question 5a
The total cost and demand functions of a firm operating under monopolistic competition are represented as follows:
TC = 850 - 8Q - 10Q2
P = 200
Where:
TC = Total costs
Q = Output
P = Price
Required:
(i) Fixed cost function.
(ii) Variable cost function.
(iii) Average cost function.
(iv) Marginal cost function.
(v) Marginal revenue function.
(vi) The level of output at which the firm breaks-even.
TC = 850 - 8Q - 10Q2
P = 200
Where:
TC = Total costs
Q = Output
P = Price
Required:
(i) Fixed cost function.
(ii) Variable cost function.
(iii) Average cost function.
(iv) Marginal cost function.
(v) Marginal revenue function.
(vi) The level of output at which the firm breaks-even.
November 2020
8 Questions
Question 1b
Using sumable examples, differentiate between the following terms as used in economics
(i) "Basic human wants" and "secondary human wants".
(ii) Public good" and "merit good".
(iii) "Stable equilibrium" and unstable equilibrium".
(i) "Basic human wants" and "secondary human wants".
(ii) Public good" and "merit good".
(iii) "Stable equilibrium" and unstable equilibrium".
Question 1c
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.
Question 2a
With the help of a diagram, discuss the concept of an individual engel curve as applied in the theory of consumer behaviour
Question 3a
Examine three sources of monopoly power
Question 3b
With the aid of a well labelled diagram, explain the equilibrium level of a firm operating under monopolistic market the long run.
Question 3c
Assume that a producer has the possibility of discriminating between the domestic and foreign markets for a product with the demand fimctions given as follows:
Q1 = 16 - 0.2P1 (Domestic market)
Q2 = 90 - 0.5P2 (Foreign market)
Tetal Cost (TC) of production is given as:
TC = 50 - 20Q
Required:
Determine the level of output and price to be charged for
(i) Domestic market
(ii) Foreign market
Question 4a
A small hypothetical economy has the following information:
C = b0+b1Y
I = I0
G = G0
T = α0 + α1Y
Where: C = Consumers expenditure
I = Pivate investment
G = Government spending
T = Taxes
Required:
(i) Determine the marginal propensity to save.
(ii) Derive the equilibrium level of income and taxes
Question 5c
Summarise four factors that might lead to an inward shift in the optimal point of a firm.
November 2019
3 Questions
Question 1c
With the help of a diagram, illustrate the concept of surplus as applied in the theory of market equilibrium.
Question 1d
The following equations are given:
Q = -10 + 6P ................... equation (1)
Q = 20 - 4P........................equation (ii)
Required:
(i) Giving reasons, identify the demand function and the supply function.
(ii) Determine the equilibrium price and quantity.
Question 3c
A firm operating under perfect competition observed that:
l. At a unit price of Sh.20 of product "R", 600 units were sold.
2. At an increased price of Sh.70, the sales of product "R" decreased by 500 units.
3. The
relationship between the price of product "R" and the quantity sold
of product "R" is linear.
4. The
total cost (TC) of product "R" is given by the function:
TC = O.9q2 + 30q + 1,000
Where q is the quantity of product "R" produced and sold.
Required:
(i) The revenue function of product "R".
(ii) The profit earned at equilibrium.
(iii)The equilibrium price.
May 2019
9 Questions
Question 1b
(i) Distinguish between "perfect oligopoly" and "imperfect oligopoly"
(ii) Describe methods used in fixing prices under the oligopoly market. structure.
(ii) Describe methods used in fixing prices under the oligopoly market. structure.
Question 1c
Highlight factors that might lead to a rightward shift of the optimal point of a firm.
Question 2b
Summarise factors that could lead to a leftward shift of the supply curve of a commodity.
Question 2c
(i) The total cost function.
(ii) The variable cost function.
(iii) The total profit of the firm when Q = 10 units.
(ii) The variable cost function.
(iii) The total profit of the firm when Q = 10 units.
Question 3c
Discuss applications of elasticity of demand in economic decision making.
Question 4a
With the aid of a well labelled diagram, explain the equilibrium level of a firm operating under an oligopolistic market structure,
Question 4b
Summarise reasons why the prices of agricultural products fluctuate more than the prices of manufactured products
Question 4d
(i) The average variable costs when the units produced are 2, 6 and 10 respectively.
(ii) The marginal costs of production for the 4th and 8 th units respectively.
(ii) The marginal costs of production for the 4th and 8 th units respectively.
Question 7b
With the aid of an appropriate diagram, explain the relatioaship between the short run average cost curve and the long run average cost curve.
November 2018
7 Questions
Question 1c
Enumerate factors that determine the price elasticity of demand of a commodity.
Question 2a
With the aid of an appropriate diagram, explain the concept of "shortage" as used in market equilibrium.
Question 2b
Discuss effects of price decontrol in an economy.
Question 2c
(i) The equilibrium price and quantity of commodity x.
(ii) The equilibrium price and quantity of commodity y.
(iii) Explain the nature of relationship between commodity x and commodity y.
(ii) The equilibrium price and quantity of commodity y.
(iii) Explain the nature of relationship between commodity x and commodity y.
Question 4b
State advantages and disadvantages of a monopoly market structure in an economy.
Question 4d
The maximum level of profit of the firm.
Question 5c
Using appropriate diagrams, analyse the following levels of output of a monopolist firm in the short-run period:
(i) The profit maximising level of output.
(ii) The loss making level of output.
(i) The profit maximising level of output.
(ii) The loss making level of output.
May 2018
10 Questions
Question 1b
Explain five conditions that could favour effective use of price discrimination in an economy
Question 3a
The demand of a certain product is represented by the following function
(i) Determine the point elasticity of demand at P Sh20
(ii) Interpret your result in (a)(i) above
Q = 200 + 5p + p²
Required:| Where: | Q is quity of the product P is the price of the product |
(i) Determine the point elasticity of demand at P Sh20
(ii) Interpret your result in (a)(i) above
Question 3c
With the aid of a well Labelled diagram explain a normal profit making firm under oligopoly in the short-run:
Question 4a
With the aid of a well labelled diagram, explain the law of diminishing marginal utility
Question 4b
Outline four properties of indifference curves.
Question 5a
Explain the term "partial equilibrium as used in economics
Question 6a
With the aid of well labelled diagrams, distinguish between "price floors and price ceilings"
Question 6c
With the help of a diagram, justify why the condition that marginal revenue equals to marginal cost (MR-MC) is only a necessary but not a sufficient condition for maximisation.
Question 7b
Summarise five consequences of wage control
Question 7c
The demand and total cost functions for a hypothetical firm are represented as follows: P = 100
TC = 50 + 8Q²
Required:
(i) The marginal cost function.
(ii) The average fixed cost function.
(iii) The marginal revenue function.
(iv) The profit maximising level of output.
TC = 50 + 8Q²
| Where: | P is the price TC is the total cost Q is the quantity |
Required:
(i) The marginal cost function.
(ii) The average fixed cost function.
(iii) The marginal revenue function.
(iv) The profit maximising level of output.
November 2017
8 Questions
Question 1b
Highlight three exceptions to the law of diminishing marginal utility
Question 2c
The data provided below relate to the quantities demanded of commodities A, B and C at different price levels:
Required:
(i) Elasticity of demand for commodities A, B and C
(ii) Using the results obtained in (c) (i) above, advise the govemment on the commodity that should be considered for a tax increase.
| Commodity A | Commodity B | Commodity C | |||
| Unit Price (Sh) 75 52 | Quantitydemanded (Units) 923 1,568 | Unit price (Sh.) 14 21 | Quantity demanded (Units) 350 620 | Unitprice (Sh.) 28 24 | Quantity demanded (Units) 540 600 |
(i) Elasticity of demand for commodities A, B and C
(ii) Using the results obtained in (c) (i) above, advise the govemment on the commodity that should be considered for a tax increase.
Question 3b
With the aid of well labelled diagrams, analyse the effects of each of the following situations on the market equilibrium price and quantity of an agricultural product X:
(i) A reduction in the price of product Y which is a close substitute for product X.
(ii) A successful promotional campaign by producers showing the nutritional benefits of product X.
(iii) Discovery of a new use for product X by consumers, accompanied by bad weather condition.
(iv) Simultaneous increase in government subsidy on product X accompanied by a reduction in the price of the substitute product Y
(i) A reduction in the price of product Y which is a close substitute for product X.
(ii) A successful promotional campaign by producers showing the nutritional benefits of product X.
(iii) Discovery of a new use for product X by consumers, accompanied by bad weather condition.
(iv) Simultaneous increase in government subsidy on product X accompanied by a reduction in the price of the substitute product Y
Question 4a
State five advantages and five disadvantages of a perfectly competitive market structure.
Question 4b
Using appropriate illustrations, describe consumer equilibrium under the following approaches to the theory of consumer behaviour:
(i) Cardinal approach
(ii) Ordinal approach.
(i) Cardinal approach
(ii) Ordinal approach.
Question 5a
The data below relate to the total cost function of a firm operating under perfect competition:
C = 5,000 - 5,000 + 1,500 + 5Q
Where:
C - Total cost in thousands of shillings.
Q - Output in units
Required:
Assuming an output level of 10 units, determine:
(i) Total cost of production.
(ii) Average variable cost of production
(iii) Marginal cost of production.
C = 5,000 - 5,000 + 1,500 + 5Q
Where:
C - Total cost in thousands of shillings.
Q - Output in units
Required:
Assuming an output level of 10 units, determine:
(i) Total cost of production.
(ii) Average variable cost of production
(iii) Marginal cost of production.
Question 6a
With the aid of a diagram, explain the term "surplus" as applied in the theory of market equilibrium.
Question 7a
Explain the difference between "inelastic demand" and "unitary elasticity of demand"
May 2017
11 Questions
Question 1b
Enumerate five factors that determine the price elasticity of supply of a commodity.
Question 1c
Using indifference curve analysis, derive the Engel's curve of a normal good.
Question 2a
With the aid of a well labelled diagram, describe the cobweb model as used in economics.
Question 2c
(i) Explain the term "cross elasticity of demand."
(ii) The following data relate to a consumer in a certain market:
Required:
The cross elasticity of demand. Comment on the relationship between commodity x and commodity y.
(ii) The following data relate to a consumer in a certain market:
| Price of commodity x (Sh.) 12 16 20 24 28 | Quantity consumed of commodity y (Units) 80 100 120 140 160 |
Required:
The cross elasticity of demand. Comment on the relationship between commodity x and commodity y.
Question 3c
State three reasons why the demand curve slopes downwards.
Question 3e
With the aid of an appropriate diagram, explain the condition under which a firm operating under perfect competition market structure would make supernormal profits in the short-run.
Question 4a
Highlight four salient features of a monopolistic competition market structure.
Question 4c
The demand and supply functions of a certain commodity are given as follows:
The equilibrium price and quantity of the commodity.
Qd = 300 - 0.4p
Qs = -400 + 0.6p
Where:Qs = -400 + 0.6p
Qd is the demand function.
Qs is the supply function
p is the unit price of the commodity
Required:Qs is the supply function
p is the unit price of the commodity
The equilibrium price and quantity of the commodity.
Question 5b
Enumerate four exceptions to the law of supply.
Question 5e
The following information relates to the demand of a commodity in relation to the income of a consumer.
Required:
The income elasticity of demand of the commodity. Interpret your result.
| Income (Sh.) 15,000 29,000 | Demand (Units) 16 7 |
The income elasticity of demand of the commodity. Interpret your result.
Question 6b
A firm operating under perfect competition has the following demand and total cost functions:
Required:
(i) The level of output that would maximise profit.
(ii) The level of output that would minimise costs
P-25-50Q
TC = 100-150-600
TC = 100-150-600
| Where: | P is the price in shillings. Q is the quantity in units, TC is the total cost. |
(i) The level of output that would maximise profit.
(ii) The level of output that would minimise costs
November 2016
8 Questions
Question 1a
(i) Explain the term "price control" as used in economics.
(ii) Highlight eight reasons for price controls in an economy.
(ii) Highlight eight reasons for price controls in an economy.
Question 1c
With the aid of a diagram, explain the concept of consumer surplus.
Question 2a
Enumerate six factors that could lead to a rightward shift of the supply curve.
Question 2c
Summarise eight factors that could affect own price elasticity of demand of a commodity
Question 3a
With the aid of well labelled diagrams, discuss the short run and long run equilibrium positions of a firm operating under monopolistic competition.
Question 3b
A monopolist sells his product in two distinct markets, A and B. The cost function of the monopolist is given as;
C = 100Q
Where: C is the total cost function
Q is the total production in units
The demand functions of the two distinct markets are given as:
QA = 50 - 0.2PA
QB = 100 - 0.5PB
Where,
QA is the demand of the product in market A.
QB is the demand of the product in market B.
PA the price of the product in market A.
PB is the price of the product in market B
Required:
(i) The equilibrium level of price and quantity of the product in market A
(ii) The equilibrium level of price and quantity of the product in market B
C = 100Q
Where: C is the total cost function
Q is the total production in units
The demand functions of the two distinct markets are given as:
QA = 50 - 0.2PA
QB = 100 - 0.5PB
Where,
QA is the demand of the product in market A.
QB is the demand of the product in market B.
PA the price of the product in market A.
PB is the price of the product in market B
Required:
(i) The equilibrium level of price and quantity of the product in market A
(ii) The equilibrium level of price and quantity of the product in market B
Question 4b
Using an appropriate diagram, describe the expansion curve of a firm as applied in the theory of production.
Question 5b
The table below shows the total variable costs of Ujuzi Limited at different levels of output.
The total fixed cost of the company is Sh. 150,000.
Required:
(i) The average cost of producing each level of output.
(ii) The marginal cost of producing each level of output.
(iii) The maximum attainable profit.
| Level of output(units) | Total variable cost(Sh) |
|---|---|
| 0 1 2 3 4 5 6 7 8 | 0 80,000 130,000 200,000 270,000 310,000 510,000 530,000 580,000 |
The total fixed cost of the company is Sh. 150,000.
Required:
(i) The average cost of producing each level of output.
(ii) The marginal cost of producing each level of output.
(iii) The maximum attainable profit.
May 2016
10 Questions
Question 1a
Outline four assumptions underlying consumer equilibrium.
Question 1c
Summarise five ways through which the government could influence the allocation of resources in a free market
economy.
Question 1d
Explain how the concept of elasticity of demand guides economic decision making in the following areas:
(i) Government tax policy on household consumption.
(ii) Devaluation policy.
(iii) Price discrimination by a monopolist.
Question 2b
Highlight five disadvantages of the monopoly market structure.
Question 2c
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 = 20р..
- Qdx 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 х.
(ii) Using indifference curve analysis, illustrate the effect of a government subsidy on commodity x to low income
earners.
Question 3b
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.
Question 3c
Discuss five'causes of the U-shaped long-run average cost curves of a firm.
Question 4a
Enumerate six barriers to occupational mobility of labour.
Question 4b
Illustrate the close down price of a firm operating under perfect competition.
Question 6b
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.
November 2015
9 Questions
Question 1a
With the aid of a diagram, describe the concept of unstable market equilibrium.
Question 1b
"All giffen goods are inferior goods but not all inferior goods are giffen goods".
Using a relevant diagram, explain the above statement.
Question 2a
Outline four arguments upon which trade unions base their demand for increase in wages for unionisable employees.
Question 2b
State six effects of price decontrols to an economy.
Question 2c
Analyse six uses of elasticity of demand in decision making.
Question 2d
The following information relate to the price per unit and quantity supplied of a certain product:
| Price per unit (Sh.) | 12 | 10 | 8 | 5 | 2 |
| Quantity supplied (Units) | 12,000 | 11,000 | 9,000 | 6,000 | 0 |
Required:
Price elasticity of supply when price decreases from Sh.10 per unit to Sh.5 per unit. Interpret your result.
Question 3a
Explain the term "optimal size of a firm".
Question 3b
With the aid of an appropriate diagram, explain the condition under which a firm operating under oligopoly market
structure would make super normal profits in the short-run.
Question 3c
(i) Summarise seven barriers to geographical mobility of labour as a factor of production.
(ii) Highlight six measures that could be adopted by a government to enhance mobility of labour.
Pilot September 2015
13 Questions
Question 2a
Highlight five features of a firm under perfect competition.
Question 2b
With the aid of a diagram, show that MC=MR is just a necessary but not sufficient condition for profit maximisation.
Question 2c
In the short-run, a monopolist does not necessarily have to make profits; he can make losses. Whether he makes a profit
or a loss depends on the position of the short-run total cost curve (SATC) at the short-run equilibrium.
Using an appropriate diagram, discuss the conditions for the loss minimisation of a monopolist.
Question 2d
Under monopolistic competitive markets the products are usually differentiated yet they are very close substitutes for
one another.
Explain the main types of product differentiation in monopolistic competitive market.
Question 3a
Giving examples, distinguish between "fixed costs" and "variable costs".
Question 3b
A firm operating in the short-run period has a fixed cost of Sh.8,600. The table below shows its total variable cost and
the units of output:
| Units of output: | 0 | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 |
| Total variable costs (Sh.): | 0 | 3040 | 5680 | 8000 | 10080 | 12000 | 14000 | 16240 | 18960 | 22480 | 26880 |
Required:
For each level of output, calculate the firm's total cost, average total cost, average variable cost, average fixed cost and
marginal cost giving your solution in columnar form/tabular form.
Question 3c
Using an appropriate diagram for each case, explain the three properties of isoquants.
Question 5a
Using the indifference curve margins, discuss how the consumers equilibrium is obtained. Use an appropriate diagram
to illustrate your answer.
Question 5b
With the help of well illustrated diagrams, draw the substitution effect and income effect of:
(i) A normal good.
(ii) An inferior good.
Question 5c
Briefly explain the concept of elasticity of demand in the economic management policy decision making.
Question 7a
Briefly explain five factors that could affect the price elasticity of supply.
Question 7b
(i) State the law of diminishing marginal returns.
(ii) With the aid of a diagram, explain the three stages of production according to this law.
Question 7c
Highlight five functions of trade unions.