Paper 2

Essay
[80 marks]
Answer four questions in all: one question only from Section A and any three questions
from Section B.
You are reminded of the importance of clarity of expression and orderly presentation of
relevant materials. All questions carry equal marks.

Section A
Answer one question only from this section.
1. The following data shows the budget of a hypothetical country in 2006. Study the
data and answer the questions that follow:
Revenue [$
million]
Company tax 240
Workers’ income tax 160
Excise duties 80
Taxes on exports 100
Value added tax 150
Import duties 90
Non-tax revenue 40

Expenditure [$ million]
Construction of roads 100
Building of schools 120
Payment of workers’ salaries 150
Government administration 200
Maintenance of health facilities 220
Extension of electricity to rural area 180
Maintenance of official vehicles 70

a. How much revenue was realized from:

i. Direct taxes; [3 marks]
ii. Indirect taxes; [3 marks]
b. Calculate the total:
i. Recurrent expenditure [3 marks]
ii. Capital expenditure [3 marks]
c. What percentage of total revenue was collected as indirect tax? [3 marks]
d. State two examples of non-tax revenue. [2 marks]
e. What was the budget surplus or deficit? Explain your answer. [3 marks]
 2. The utility of a consumer for brand of ice cream is shown in the table below.
Use the information to answer the questions that follow:
Units Total Marginal
Consumed (Q) Utility (TU) Utility (MU)

0 0 ___
1 10 10
2 19 R
3 P 6
4 30 5
5 31 S
6 Q 0
7 29 -2
a. Calculate the value of P,Q,R and S. [8 marks]
b. Given that the price of ice cream is $1.00 per unit, at what level of consumption
is the consumer in equilibrium? Explain your answer. [3 marks]
c. Using the graph sheet, draw the marginal unit curve. [6 marks[
d. State the law of diminishing marginal utility. [3 marks]

Section B
Answer three questions only from this section.
3. a. What is a production possibility curve? [3 marks]
b. Draw a production possibility curve and indicate any:
I. point P, where resources are fully utilized;
II. point U, where resources are under-utilized
III. point X, where production is not feasible. [8 marks]
c. explain any two factors that can make production at point X feasible.
[6 marks]s
d. Why is the production possibility curve negatively slopped? [3 marks]
4. a. What is
(i.) peasant farming? [2marks]
(II.) co-operative farming? [3 marks]
b. identify any five ways through which the government can assist peasant farmers.
[15 marks]
5. a. What is price elasticity of supply? [2 marks]
b. Differentiate between joint supply and competitive supply. [6 marks]
c. Explain any four determinants of elasticity of supply. [12 marks]
6. a. Define:
I. Building Society; [2 marks]
 ii. Central Bank. [3 marks]
b. Highlight any five instruments of the Central Bank in regulating the supply of money.
[15 marks]
7. a. Who is a discriminating monopolist? [2 marks]
b. Explain any four condition necessary for a monopolist to practice price
discrimination. [12 marks]
c. Explain any two benefits enjoyed by a discriminating monopolist.
[6 marks]
8. Explain the following National Income concepts:
a. Gross Domestic Product (GDP) [4 marks]
b. Gross’s National Product (GNP) [4 marks]
c. Cost of living. [4 marks]
d. Per Capital Income [4 marks]
e. Standard of living [4 marks]