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Eet 100: Microeconomic Thelory I July 2015 Question Paper

Eet 100: Microeconomic Thelory I July 2015

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2015

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2014/2015
MAY SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF ARTS,
BACHELOR OF EDUCATION AND BACHELOR OF COMMERCE

EET 100: MICROECONOMIC THEORY I

DATE: Friday 31st July 2015 TIME: 2 hours

INSTRUCTIONS:

Answer QUESTIONS ONE (Compulsory) and any other TWO questions. Question one carries 30 marks and the rest carry 20 marks each.

QUESTION ONE

(a) i. Plot the following data and indicate the equilibrium price
(2 marks)

Price (Ksh)	Q_d	Q_s
10	5	25
8	10	20
6	15	15
2	20	10
0	25	5

ii. What would happen if the maximum price would be held at Ksh 2? Illustrate the results by diagram and explain this situation
(11 marks)
iii. What would happen if tastes for this product changed such that at any given price twice as many would be purchased as before? Show this change on your diagram and explain the results. What might account for such a change in tastes?

(b) Explain using an illustration an illustration how diminishing marginal utility relates to the shape of the conventional demand curve
(5 marks)

(c) Why is PPF concave to the origin? What would be implied by a PPF represented by a straight line
(4 marks)

Question TWO

(a) Using illustration explain why the previous ministers’ of finance in Kenya and even the present Cabinet Secretary persistently picks on cigarettes and beer and the prices of this items are invariably raised come budget time. Yet BAT and Kenya Breweries, which makes and sell those goods have never complained of the high prices nor have consumers
(10 marks)

(b) Explain the reasons for the downward sloping demand curve.
(6 marks)
(c) Clearly distinguish between a giffen good and an inferior good
(4 marks)

Question THREE

(a) What is elasticity of supply
(4 marks)

(b) Explain why only one equilibrium price can exist in a given market at one time. Is it ever possible for 2 prices to exist at given product? What conditions would be necessary for this to occur
(6 marks)

(c) With the following cost data compute total costs, average fixed costs, average variable cost, average total costs and marginal costs. Plot your results. Assume fixed cost to be 50
(12 marks)

Match the following.

Q	0	1	2	3	4	5	6	7	8	9	10	10
TVC	0	100	190	270	340	420	510	610	720	840	990	1190

Question FOUR

(a) Sketch hypothetical supply and demand curves for a product as Kenyan coffee. Suppose that Brazil has an abundant crop and is able to sell more to its customers.

(i) What might this do to the demand for Kenyans coffee?
(4 marks)
(ii) Assuming there is an institutional agreement that have been attempted to limit price fluctuations in this commodity. Do such arrangements negate the law of supply and demand? Use a illustration to explain your argument.
(5 marks)
(iii) Using the institutional agreement, how do they accomplish their objective?
(3 marks)
(b) Explain the causes of monopoly power
(8 marks)

Question FIVE

(a) What are the assumptions of ordinal approach
(6 marks)
(b) Determine the equilibrium quantity of commodities x and for a consumer whose total utility ($\mu$) and other variables are given below:

$\mu=40x-3z^2-2z-x^2$

Income level y = Ksh. 48
Price of x(P_x) = Ksh. 2
Price of Z(P_z) = Ksh. 4

c)Explain the factors the influence the elasticity of supply
(8 marks)

Eet 100: Microeconomic Thelory I July 2015 Question Paper

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