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KASNEB

CPA PART 1 SECTION 2

CPS PART I SECTION 2

CSIA PART 1 SECTION 2

CCP PART I SECTION 2

ECONOMICS

MONDAY: 29 November 2010. Time Allowed: 3 hours.

Answer any FIVE questions. ALL questions carry equal marks.

QUESTION ONE
(a) Briefly explain the challenges encountered by planned economic systems
in their transition to market oriented economics. (10 marks)

(b) Discuss the key features of a mixed economic system. (10 marks)
(Total: 20marks)
QUESTION TWO
(a) Outline four factors that determine price elasticity of demand for a
commodity. (4 marks)

(b) Explain the importance of elasticity of supply in economic decision making.


(8 marks)

(c) (i) With the aid of a well labeled diagram, distinguish between shifts in
demand curve and movements along the demand curve. (4 marks)

(ii) Highlight four factors that could lead to a rightward shift in the
demand curve. (4 marks)
(Total: 20 marks)

QUESTION THREE
(a) Distinguish between perfect oligopoly and imperfect oligopoly . (4 marks)

(b) Briefly explain the economic effects of the oligopolistic market conditions in
an economy. (8 marks)
(c) Outline the characteristics of an oligopolistic market structure. (8 marks)
(Total: 20 marks)

QUESTION FOUR
(a) (i) With the aid of a diagram, briefly explain the characteristics of
indifference curves. (8 marks)

(ii) Highlight the limitation of indifference curves in economic analysis.


(6 marks)

(b) Identity six characteristics of a good development plan. (6 marks)


(Total: 20 mark)

QUESTION FIVE
(a) (i) Define the term “multiplier.” (2 marks)

(ii) Outline the factors that limit the application. (8 marks)

(b) The following data relate to the commodity and money markets of the
economy of country XYZ.

Y = C+1
C = 1,000+0.5Y
1 = 20,000-200r
MDT = 0.2Y
MDS = 350-400r
Ms = 2,500

Where: Y is the national income


C is the consumption function
I is the investment function
r is the interest
MDT is the precautionary and transactionary demand for money
Ms is the money supply
MDS is the speculative demand for money

Required:

(i) Equilibrium level of national income. (5 marks)

(ii) Equilibrium level of interest rate. (5 marks)

(Total: 20 Marks)
QUESTION SIX
(a) Outline four demerits of direct taxation to an economy. (4 marks)

(b) Briefly describe four factors that determine the supply of labour in an
economy. (8 marks)

(c) Identify and briefly explain the functions of trade unions. (8 marks)

(Total: 20 marks)

QUESTION SEVEN
(a) Distinguish between economic growth and economic development. (4 marks)

(b) Discuss the causes of the high external debts experienced in the developing

countries. (4 marks)

(c) Outline the economic policy measures that should be applied to minimize the

problem of external debt in developing countries. (8 marks)

(Total: 20marks)

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KASNEB
CPA PART 1 SECTION 2

CPS PART 1 SECTION 2

CSIA PART 1 SECTION 2

CCP PART 1 SECTION 2

ECONOMICS

Monday: 31 May 2010 Time Allowed: 3 hours

Answer any FIVE questions All questions carry equal marks

QUESTION ONE

(a) Define the term ‘price ring’. (2 marks)

(b) Outline two factors that would ensure successful implementation of a price
Ring. (4 marks)

(c) Distinguish between a ‘price ceiling and a ‘price floor’. (4 marks)

(d) Highlight the effects of instituting the following in an economy

(i) Price floors. (5 marks)

(ii) Price ceilings (5 marks)

(Total: 20marks)

QUESTION TWO

(a) Distinguish between ‘near money’ and ‘money substitutes.’ (4 marks)

(b) Explain four factors that would limit the effectiveness of fiscal policy
instruments in developing countries. (8 marks)
(c) Define the term ‘inflation’. (2 marks)

(d) Explain the effects of inflation on the functions of money in an economy.


(6marks)

(Total: 20marks)
QUESTION THREE
(a) Using a well labeled diagram, explain the concept of the regressive demand
curve. (6marks)

(b) Explain how the government could influence the allocation of economic
resources in a country. (10 marks)

(c) Outline four advantages of a controlled market system. (4 marks)


(Total: 20marks)

QUESTION FOUR
Distinguish between the following sets of terms

(a) Depreciation and devaluation of a currency. (4 marks)

(b) Expansion path and price consumption curve. (4 marks)

(c) Transfer payments and transfer earnings. (4 marks)

(d) Balance of trade and terms of trade (4 marks)

(e) Gross national product at market price and net national product at factor cost.
(4 marks)
(Total: 20marks)

QUESTION FIVE
Maji Mazuri Water and Sewerage Company Limited is the only water service provider
in Mjini City. The company supplies water to two distinct markets; domestic and
commercial users.

The demand for the company’s product in the two markets is represented by the
following equations:

Q1 = 101 – 0.5P1

Q2 = 160.4 – 0.2P2
Where

Q1 = Output sold to domestic users


Q2 = Output sold to commercial users
P1 = Price charged to domestic users
P2 = Price charged to commercial users

The unit cost of the company is given by the function:

C=160+2Q+18Q2

The total demand for the company’s output is given by the equation: Q = 200 – 4P

Required:

(a) The profit maximizing level of output for the two markets. (6 marks)
(b) Prices to be charged in the two markets. (2 marks)

(c) The amount of profit the firm would earn if it sold the product at a single
price in the two markets and if it discriminates the price charged in the two
markets. (8 marks)
(d) The price elasticity of demand for each of the two markets at the equilibrium
price and quantity. (4 marks)
(Total: 20marks)

QUESTION SIX
(a) Explain the relationship between the short-run and long-run average cost
curves of a firm. (4 marks)

(b) State the law of diminishing marginal utility. (2 marks)

(c) With the aid of a well labeled diagram, explain the law of diminishing
marginal utility. (6 marks)

(d) Highlight the barriers to occupational mobility of labour. (8 marks)


(Total: 20marks)
QUESTION SEVEN
(a) Define the term ‘unemployment’. (2 marks)

(b) Explain five reasons why unemployment is a major policy issue in developing
countries. (10 marks)

(c) Outline the limitations to the cardinal approach in measuring utility.


(8 marks)
(Total: 20marks)
………………………………………………………………
KASNEB
CPA PART 1

CPS PART 1

CSIA PART 1

CCP PART 1

ECONOMICS

Monday: 30 November 2009. Time Allowed: 3 Hours.

Answer any FIVE questions. All questions carry equal marks.

QUESTION ONE
(a) Define the term “indifference curve”. (2 marks)

(b) Outline the application of the indifference curve analysis in an economy. (8 marks)

(c) Briefly explain the factors that influence the cost of production in a firm. (6 marks)

(d) Highlight the assumptions of the law of variable proportions as applied in


production theory. (4 marks)
(Total: 20 marks)
QUESTION TWO
(a) Distinguish between “individual demand” and “market demand”. (4 marks)

(b) In relation to management of businesses, explain the applications of the theory of


demand. (10 marks)

(c) With the aid of a diagram, briefly explain the effect of a government subsidy on
given product to its market equilibrium position. (6 marks)
(Total: 20 marks)
QUESTION THREE
(a) Economics is concerned with the allocation of resources”. Outline three resource
allocation decisions made in an economy. (6 marks)

(b) Highlight three characteristics of economic resources. (6 marks)

(c) Discuss the importance of the concept of opportunity cost in an economy. (8 marks)
(Total: 20 marks)
QUESTION FOUR
(a) Distinguish between the following market structures:
(i) Monopoly and monopolistic competition. (4 marks)
(ii) Oligopoly and duopoly. (4 marks)

(b) With the aid of diagrams, describe the profit maximizing and loss making levels of
output of a monopolist firm in the short-run period. (12 marks)
(Total: 20 marks)

QUESTION FIVE
(a) The following data relate to the economy of country XYZ.

Sh. “million”
Investment 4,000
Government spending 10,000
Autonomous consumption 8,000
Net exports 3,600

The marginal propensity to save of the economy of country XYZ is 0.4.

Required:
(i) The consumption function of this economy. (5 marks)

(ii) The equilibrium level of income of the economy. (7 marks)

(b) Using a diagram, outline the circular flow of income in an open economy. (8 marks)
(Total: 20 marks)

QUESTION SIX
(a) Using an illustration, explain the theory of absolute advantage. (6 marks)

(b) Summarize the limitations to the theory of comparative advantage. (8 marks)

(c) Highlight the reasons why national debt management is a salient policy issue in
developing countries. (6 marks)
(Total: 20 marks)

QUESTION SEVEN
(a) Define the term “development planning”. (2 marks)

(b) Discuss the importance of development planning in an economy. (8 marks)

(c) Explain the factors that limit the application of monetary tools in developing
economies. (10 marks)
(Total: 20 marks)
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KASNEB
CPA PART 1

CPS PART 1

CSIA PART 1

CCP PART 1

PILOT PASPER

ECONOMICS

August 2009 Time Allowed: 3 hours

Answer any FIVE questions ALL questions carry equal marks

QUESTION ONE
(a) Distinguish between “point elasticity of demand” and “cross elasticity of
demand”. (4 marks)

(b) The data below relate to commodity x.

Price (Sh.) Demand (units)


10 400
9 500
8 600
7 700
6 800
5 900
4 1,000
3 1,100

Required:
(i) If the price of commodity x reduces from Sh. 9 t0 Sh. 8, determine the arc
price elasticity of demand.
Interpret your result. (4 marks)

(ii) The point elasticity of demand as the price changes from Sh. 6 to Sh. 7.
(4 marks)

(c) Outline the factors that determine the price elasticity of supply. (8 marks
(Total: 20 marks)
QUESTION TWO
(a) State the law of diminishing marginal returns. (2 marks)

(b) Using indifference curve analysis, explain the substitution and income effects of
a fall in the price of Commodity x, where commodity x is:

(i) An inferior good. (6 marks)

(ii) A giffen good. (6 marks)

(c) Identify the sources of diseconomies of scale. (6 marks)


(Total: 20 marks)

QUESTION THREE
(a) Define the term “consumer surplus” (2 marks)

(b) Given below is a demand schedule:

Price (Kshs.) 10 8 6 4
Quantity (units) 0 2 4 6

Required:
With the aid of a graph, determine the value of consumer surplus if a single price
of Sh. 5 prevails in the market.. (6 marks)

(c) Explain the factors that could lead to a downward shift in the demand curve.
(6 marks)
(d) Identify the causes of budget deficits in developing countries. (6 marks)
(Total: 20 marks)

QUESTION FOUR
(a) Distinguish between a “tariff” and a “quota” as applied in international trade.
(4 marks)
(b) Argue the case for international trade restrictions. (8 marks)

(c) With aid of a well labeled diagram, explain how fiscal policy may be used to
correct a deflationary gap in an economy. (8 mark
(Total: 20 marks)

QUESTION FIVE
(a) Outline the different approaches used in the measurement of the national
income of a country. (6 marks)

(b) The following data relate to the economy of country Y:


Sh. “million”
Government spending 8,000
Autonomous consumption 10,000
Investments 2,000
Net exports 1,000

Required:
The equilibrium national income of country Y, given that the country’s marginal
propensity to consume equals 0.6. (6 marks)

(c) Highlight the factors that contribute to low economic growth rates in developing
countries. (8 marks)
(Total: 20 marks)

QUESTION SIX
(a) Define the term “credit creation” as applied by commercial banks. (2 marks)

(b) Outline the factors that limit credit creation by commercial banks. (8 marks)

(c) Explain the role of commercial banks in an economy. (10 marks)


(Total: 20 marks)

QUESTION SEVEN
(a) Distinguish between “disguised unemployment” and “demand deficient
unemployment”. (4 marks)

(b) With the aid of a diagram, describe the backward bending supply curve for
labour. (6 marks)

(c) Wage differentials exist both between occupations and within the same
occupations. Discuss the factors that are responsible for wage differentials
between occupations. (10 marks)
(Total: 20 marks)
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