Econ 110: Introduction To Microeconomics December 2008 Question Paper

Econ 110: Introduction To Microeconomics December 2008

Course:Bachelor Of Economics And Mathematics

Institution: Kabarak University question papers

Exam Year:2008

COURSE CODE: ECON 110
COURSE TITLE: INTRODUCTION TO
MICROECONOMICS
STREAM: Y1S1

INSTRUCTIONS:
Question ONE is Compulsory.
Attempt any other TWO (2) questions
You are encouraged to be concise and avoid ambiguous answers
All diagrams should be fully labeled.
QUESTION 1 (COMPULSORY)
a) Explain the usage of the following terms in economics:
i) Goods (1 mark)
ii) Diminishing factor productivity (1 mark)
iii) Isoutility curve (1 mark)
iv) Fixed cost of production (1 mark)
v) Perfectly inelastic demand (1 mark)
b) Differentiate between the following paired concepts:
i) Opportunity cost and scarcity (2 marks)
ii) Monopoly and monopolistic competition (2 marks)
iii) Demand function and production function (2 marks)
iv) Marginal rate of substitution (MRSxy) and marginal rate of
technical substitution (MRTSLK) (2 marks)
v) Indifference curve and Isoquant (2 marks)
c) i) State the “Law of demand” and explain exceptions to this law (5 marks)
ii) “An increase in demand leads to a rise in price, but a rise in prices leads to a fall
in quantity demanded”. Is this statement a negation of the Law of demand?
Explain (5 marks)
d) i) Explain the relevance of the concept of “opportunity cost” in your decision to
register for a B.Com course at Kabarak University (3 marks)
ii) Under what circumstances would consumers be irrational in their decisions?
(2 marks)
QUESTION 2
a) Define and give the formula of cross-price elasticity of demand (3 marks)
b) The cross-price elasticity of demand for commodities x and y was calculated and found
to be positive. What does this explain about these two commodities? Provide two
examples of such commodities. (5 marks)
c) Explain the importance of elasticity in economics (5 marks)
d) The post-election violence that rocked many parts of Kenya increased the general cost
of living. Provide an economic explanation to this statement. (7 marks)
QUESTION 3
a) Using suitable examples distinguish between perfect competition and monopoly
markets. (5 marks)
b) i) Taking an example of a perfectly competitive market given above,
show graphically and explain how price-output determination is
achieved in the short-run bearing in mind the underlying assumptions. (10 marks)
ii) Explain whether the situation in 3 b (i) will prevail in the long-run (5 marks)
QUESTION 4
a) State the “Law of diminishing returns” and distinguish between “returns to
a variable factor of production” and “returns to scale” (4 marks)
b) Use appropriate diagrams to show the three different types of “returns to scale” and
provide possible reasons for each type of “returns to scale” (6 marks)
c) Define economies of scale and use this concept to demonstrate how any attempt to
mechanize small holder agricultural production is likely to encounter many obstacles.
(5 marks)
d) Using appropriate diagrams explain the Law of diminishing marginal utility (5 marks)
QUESTION 5
a) Define Pareto optimality (2 marks)
b) Assume that Kenya has a comparative advantage in the production of horticultural
products while China has a comparative advantage in the production of electronic
products. Use indifference curves to show that trade between Kenya and China can
lead to that attainment of Pareto optimality. (10 marks)
c) Explain why agricultural products change in supply while industrial products change in
quantity supplied (8 marks)

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