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Econ 110: Introductory Economics Question Paper

Econ 110: Introductory Economics

Course:Bachelor Of Education Science

Institution: Kabarak University question papers

Exam Year:2010

COURSE CODE: ECON 110
COURSE TITLE: INTRODUCTORY ECONOMICS
STREAM: Y1S1

INSTRUCTIONS:
Answer question ONE and any other TWO questions.

1 (a).Distinguish between:
(i) Microeconomics and macroeconomics. (2 marks)
(ii) Positive economics and normative economics. (2 marks)
(b) (i) Explain the factors which influence consumers demand for a good. (6 marks)
(ii) Define the law of demand and identify the exceptions to this law. (3 marks)
(c) The quantity demanded and total sales value of good x at different prices is given as follows:

PRICE OF X QUANTITY DEMANDED TOTAL SALES VALUE:
8 0 0
7 5 35
6 10 60
5 15 75
4 20 80
3 25 75
2 30 60
1 35 35
0 40 0

Required:
(i) Calculate the elasticity of demand when price is sh.6. (3 marks)
(ii) Estimate the elasticity of the demand curve in the price range from sh.5 to sh.6.
(4 marks)
(d) Explain why indifference curves do not intersect. (2 marks)
(e) Suppose all of an individual’s weekly income is spent on two goods, x and y.
(i) Draw the individual’s budget line if his or her income is sh.150 per week, the price of
X is sh.10 per unit and the price of y is sh.15 per unit . (2 marks) Page 3 of 4

(ii) Draw the new budget lines:
(a) If the price of x doubles. (2 marks)
(b) The price of y halves. (2 marks)
(c) If the individual’s income rises to sh.250 per week. (2 marks
2. (a) (i) Define Isoquant. (1 mark)
(ii) Explain the general properties of Isoquants. (3 marks)
(b) What do you understand by the term marginal rate of technical substitution between labour
and capital (MRTSLK), (3 marks)
(c) Consider the following short –run production function (where L is the variable input and
Q is the output):
Q = 6L2
– 0.4L3

(i) Determine the marginal product function (MPL) (1 mark)
(ii) Determine the average product function (APL) (1mark)
(iii) Find the value of L that maximizes Q. (3 marks)
(iv) Find the value of L at which its average product takes on its maximum value. (3 marks)
(d) The demand function equation faced by HCL for its personal computers is given by:
P = 50,000 – 4Q
(I) At what price and quantity marginal revenue will be zero . (2 marks)
(ii) At what price and quantity will total revenue be maximized? (2 marks)
(iii) Comment on your answer in (i) and (ii) above. (1 mark)
3. (a) Briefly explain the following terms:
(i) Constant returns to scale. (5 marks)
(ii) Increasing returns to scale. (5 marks)
(iii) Decreasing returns to scale. ( 5 marks)
(b) Capital – labour ratio has been increasing in the Kenyan manufacturing industry over Page 4 of 4

time. What possible explanations can you offer for this increase in capital intensity?
(5 marks)
4. (a) With the help of indifference curve analysis, show the substitution and income effects for a
normal good in case of a price decrease. (6 marks)
(b) A biscuit producing company has the following variable cost function:
TVC = 200Q – 9Q2
+ 0.25Q3

If the company’s fixed costs are equal to sh.150 find out:
(i) Total cost function (3 marks)
(ii) Marginal cost function (3 marks)
(iii) Average variable cost function (2 marks)
(iv) Average total cost function. (2 marks)
(v) At what output levels average variable cost and marginal cost will be minimum.
(4 marks)
5. (a) Identify the conditions under which price discrimination is possible. (6 marks)
(b) Explain the various features of a perfectly competitive market. ((8 marks)
(c) With the help of a diagram explain the short-run equilibrium of a firm in case of losses.
(6 marks)

Econ 110: Introductory Economics Question Paper

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