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Micro-econ Past Paper 2

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57 views3 pages

Micro-econ Past Paper 2

Uploaded by

alfredrunz7
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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UNIVERSITY EXAMINATIONS: 2023/2024

EXAMINATION FOR BACHELOR OF ARTS IN ECONOMICS AND


BUSINESS STUDIES

ECON 100: INTRODUCTION TO MICROECONOMICS

DATE: NOVEMBER, 2023 TIME: 2 HOURS

INSTRUCTIONS: Answer Question One and Any Other Two Questions

QUESTION ONE (20 MARKS)

a) People cannot not have everything they want in their life. This is because they are confronted with
limited supply for their unlimited wants, an issue that calls for choices and by extension costs and
trade-offs. Suppose someone has an option of buying a smoothie costing ksh. 200 at a Mall, an
option that requires a personal decision depending on whether he/she likes smoothies, but instead
suggests wearing a unique pair of classic fashion glasses:
i. Explain your understanding about the ‘opportunity cost’, ‘scarcity’ and ‘choice’
(3 Marks)
ii. What is the opportunity cost of buying a smoothie? Explain why. (3 Marks)
b) Isoquants may assume various shapes depending on the degree of substitutability. By the support
of graphs, show and explain any three types of isoquants. (6 Marks)
c) Consider a standard utility function given as 𝑈(𝑋, 𝑍) = √𝑥 + √𝑧. Where X and Z are two goods
under consideration. Let 𝑝𝑥 be the price of X and 𝑝𝑧 be the price of Z. Also let Y denote income.
Compute the Marginal Rate of Substitution (MRS) between good X and Z. (4 Marks)
d) The law of returns to scale is an analysis of production which shows the amount by which total
output will change when all factor inputs change by the same proportion. Explain with the help of
equations the types of returns to scale that are applicable in production. (6 Marks)
QUESTION TWO (15 MARKS)
a) The following is the demand function of good y

QY  5000  0.5 pY  2.3 pW  0.2 p X  0.000001 pZ  0.0037 I


Suppose you are given
p y  30,000 Q y  15,000 incomeI   60,000

Compute
i. Price elasticity of demand and interpret your results (3 Marks)
ii. Income elasticity of demand and interpret your results (3 Marks)
iii. From income elasticity of demand, what type of product would y be (luxury or necessity
good)? (1 Mark)
b) By use of graphs, state and show the effect of the following factors on the supply curve for a
good.

i. Improvement in technology (2 Marks)


ii. Government imposition of excise duty on imported raw materials
(2 Marks)
iii. Lower price of imported competing products (2 Marks)
iv. Peaceful and secure market (2 Marks)

QUESTION THREE (15 MARKS)


a) Economics has been defined differently by various economists. In light to this, highlight three
distinct meanings of ‘Economics’. (3 Marks)
b) State any three characteristics that would distinguish an monopoly market from a pure
competitive market (3 marks)
c) Using the production curves illustrate the three levels of a production in a diagram.
(5 Marks)
d) state the assumptions of the relevant law which makes it possible to distinguish between the levels
of production illustrated in 3(b) above (4 Marks)

2
QUESTION FOUR (15 MARKS)
a) Explain the various economic systems that you know, giving one weakness of each.
(8 marks)
b) Name and explain any four axioms under the ordinalist approach of consumer behaviour.
(4 Marks)
c) Consider the cost function of Bamburi Cement Ltd given by Total cost (TC) = 4Q2+ 16.
Find:
i. Average cost (0.5 Marks)
ii. Average variable cost (0.5 Mark)
iii. Average fixed cost (0.5 Mark)
iv. Marginal cost (1.5 Marks)

QUESTION FIVE (15 MARKS)


a)
Price of Wheat per kg Demand for Wheat Supply of Wheat (kg)
(ksh) (kg)

2 35 15

5 25 17

7 20 20

8 10 25

9 5 27

From the Table above: Determine the equilibrium price as well as the equilibrium quantity demanded
and supplied? (Use a well labelled graph) (6 marks)
b) Differentiate between the law of demand and law of supply. (2 marks)
c) Define the term ‘Elasticity’ as used in Economics and its significance within an economy
(7 Marks)

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