Question One The table below shows the demand and supply schedules for a product. Price (Sh. Per Kg.) Demand (Kg) Supply (Kg.

Question One

The table below shows the demand and supply schedules for a product.


(Sh. Per Kg.)        Demand      (Kg)  Supply   (Kg.)                  

           10                100             20

           20                 85             36

           30                 70             53

           40                 55             70

           50                 40             87

           60                 25           103

           70                 10           120


a.   Derive demand and supply curves graphically and determine the equilibrium price and quantity                                                                                          (4 marks)

b.   Determine the demand and supply functions for this market                (4 marks)

c.    What is the price elasticity of demand for this commodity at equilibrium?(4 marks)

d.   Explain four factors that influence the price elasticity of demand          (4 marks)

e.   Discuss the importance of elasticity of supply and demand in formulating government policies                                                                                      (4 marks)

Question Two

a.   Using an appropriate diagram, explain the stages of production associated with the law of diminishing returns                                                                        (6 marks)

b.   What is mobility of labor, why is it important in formulating government policy on unemployment?                                                                                (4 marks)

c.    Explain briefly the necessary conditions for a perfectly competitive market (4 marks)

d.   What is a monopoly market? Explain the various sources of monopoly power (6 marks)

Question Three

The total cost equation in the production of beckon at a certain factory is given as follows C= 1000 + 1000-25Q2+ Q3 Where C is the cost is Shs. and Q is the quality in Kg. Required:

a.   What are the Average cost & Marginal cost functions                          (2 marks)

b.   Compute the total and average cost at the output of 10kg and 11kg       (6 marks)

c.    What is the marginal cost of the 12th kg?                                           (4 marks)

d.   Explain the slope and relationship between the average cost, average variable cost, marginal cost and fixed cost curve using relevant diagrams                  (8 marks)

Question Four

a.   State the nature and properties of indifference curves?          (4 marks)

b.  Explain the equilibrium of the consumer using indifference curves technique                                                                                (4 marks)

c.   Explain the law of diminishing marginal rate of substitution (6 marks)

d.  Distinguish between income and substitution effects of a price change for a normal good. (Illustrate your answer)                             (6 marks)

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