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Econ 110: Introductory Economics December 2008 Question Paper

Econ 110: Introductory Economics December 2008

Course:Bachelor Of Science In Computer Science

Institution: Kabarak University question papers

Exam Year:2008

COURSE CODE: ECON 110
COURSE TITLE: INTRODUCTION TO
MICROECONOMICS
STREAM: Y1S1
INSTRUCTIONS:
1. Answer question ONE and any Other TWO questions
2. Question ONE carries 30 marks and the rest 20 marks each
3. Show all your workings clearly (where appropriate).
1. (a) Differentiate the following pairs of concepts (use diagrams where
appropriate)
(i) Production function and production possibility frontier. (4 marks)
(ii) Marginal rate of substitution and marginal rate of technical substitution.
(3 marks)
(iii) Monopoly market and monopolistic market structures (3 marks)
(iv) Isoquant and indifference curves (4 marks)
(v) Expansion path and income consumption line (4 marks)
(b) A consumer has a utility function of the form;
U = X.Y
Where X and Y are any two goods. Given further that;
The price of goods X (Px) = Kshs. 8
The price of good Y (Py) = Kshs. 20
The consumers income (I) = Kshs. 1000
(i) Calculate the number of units that the consumer should consume in order to
maximize utility (10 marks)
(ii) What is the maximum utility the consumer derives from the consumption of
the two goods (2 marks)
2 (a) Using appropriate, well labeled diagrams differentiate between the substitution
effect and income effect of a decrease in the price of a normal good.
(14 Marks)
(b) Explain clearly the main limitations of cardinal utility theory (6 marks)
3 (a) Explain in detail the main features of a perfectly competitive market
(8 marks)
(b) With the aid of a diagram, show a situation of a loss in a perfectly competitive
market (5 marks)
(c) Explain the sources of monopoly power (7 marks)
4. (a) Given the following equations;
0.5P – Q = 20
36 – Q = 0.5P
(i) Identify which of the above equations represents demand and supply
functions. Give reasons (4 marks)
(ii) Calculate the equilibrium values of price and quantity and give economic
interpretation of your results (6 marks)
(b) Using demand and supply functions identified in (a) above calculate;
(i) Price elasticity of demand at Price (P) = 1 and comment on your results
(5 marks)
(ii) Price elasticity of supply at Price (P) = 2 and comment on your results.
(5 marks)
5 (a) Explain the main factors influencing the demand for a variable factor of
production of an individual firm (10 marks)
(b) (i) Using a well-labeled diagram distinguish between a movement along a
demand curve and a shift of a demand curve. (4 marks)
ii) Explain the factors which lead to the shift of the demand curve
(6 Marks)

Econ 110: Introductory Economics December 2008 Question Paper

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