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Economics Revision Questions Question Paper
Economics Revision Questions
Course:Cpa Part I
Institution: Strathmore Business School question papers
Exam Year:2004
3.2 DEMAND, SUPPLY AND DETERMINATION OF (EQUILIBRIUM) PRICE
QUESTION THREE
a) Clearly explain the distinction between supply, demand and equilibrium price. (8 marks)
b) State and briefly explain any four main factors that may cause a fall in the supply of a good in the
market. (4 marks)
c) The table below shows the demand and supply schedules for a product.
Price (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
Required:
Plot the demand and supply curves and determine the equilibrium price and quantity (8 marks)
(Total: 20 marks)
QUESTION FOUR
a) Write short notes on Market Equilibrium. (6 marks)
b) Using the following demand and supply functions of a commodity x, compute the equilibrium price and quantity.
Qd = 100 - 2P
Qs = 40 + 4P (4 marks)
c) Ceteris paribus, use diagrams to illustrate and explain the effects on the values in (b) from:
i) a fall in price of x’s substitute. (4 marks)
ii) a simultaneous increase in input prices and a rise in the consumer’s income. (6 marks)
(Total: 20 marks)
QUESTION FIVE
The following economic functions have been derived by the Finance Manager of the Kenya Tea Limited:
Qa = 3p2 – 4p and
Qb = 24 – p2; where p represents price and Q is quantity
Required:
a) i) Which of the two functions represents a demand curve, supply curve and why? (4 marks)
ii) At what values of price and quantity is the market in equilibrium? (6 marks)
b) Explain, with the aid of a diagram, the effect on the demand and supply functions indicated in (a) above of a simultaneous decrease in cost of production and an increase in the price of a complementary good. (10 marks)
(Total: 20 marks)
QUESTION SIX
a) i. Give the meaning of the term ‘ Price Control’ (2 marks)
ii. Explain the circumstances under which price control is considered necessary. (4 marks)
b) i. With the aid of well-labeled diagrams, distinguish between price floors and
price ceilings. (6 marks)
ii. What are the major consequences of each of the price control measures? (8 marks)
(Total: 20 marks)
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