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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
MOCK EXAMINATION
To be carried out under examination conditions and sent to the Distance Learning Administrator for marking by Strathmore University.
TIME ALLOWED: 3 HOURS ATTEMPT ANY FIVE QUESTIONS
Answer Any Five Questions Time Allowed: 3 hours
QUESTION ONE
The last decade was very dramatic. The international community set itself a daunting task – to halve the number of extremely people in the world by the year 2015. Kenya on its part already has Poverty Reduction Strategy Paper (PRSP) and Poverty Eradication Commission.
Clearly give an analytical context of the nature and scope of poverty in developing countries, and suggest some of the key policy measures aimed at addressing this problem. (Total: 20 marks)
QUESTION TWO
The managing Director of Kenya Movie Theatre Ltd. Has hired you as a consultant to advise on the ticket-pricing strategy. As a basis for our recommendations you consider historical ticket-sales date which seems to suggest the following ticket sales elasticities:
Own-price elasticity = -0.5
Refreshment price elasticity =0.12
Nairobi population elasticity = +0.65
Advertising elasticity = +0.70
(a) The managing director is contemplating a moderate increase in ticket prices in order to increases revenue. Explain whether this is a good idea. (5 marks)
(b) The managing director is also contemplating a moderate increase in the advertising budget in order to increase revenue. Is this a good idea? Explain (5 marks)
(c) How would you characterize the relationship between tickets and refreshments?
(5 marks)
(d) If the population of Nairobi increase from 120,000 to 122,400 people in the next one year, what would be the resulting impact on the ticket demand? Assume all other factors are held constant. (5 marks)
(Total: 20 marks)
QUESTION THREE
Kenya is planning to be a newly industrialized country by the year 2020 A.D. What obstacles are likely to impede the achievement of this objective and what steps must be taken to overcome such obstacles? (Total: 20 marks)
QUESTION FOUR
(a) (i) Define the term cross price elasticity of demand and clearly explain its
value for substitutes and complementary commodities. (5 marks)
(ii) Use data in the table below to compute income elasticity through the
arc elasticity method:
Quantity Income (sh.) Price (sh.)
100 5000 16
120 6000 16
(2 marks)
(b) Discuss any three practical applications of the concept of elasticity of
demand in Management and economic policy decision making.
(6 marks)
(c) (i) The demand for a commodity is five units when the price is sh.1,000
per unit. When price per unit falls to sh.600, the demand rises to six units.
Compute the point and are arc elasticity. (4 marks)
(ii) State the main determinants of elasticity of demand. (3 marks)
(Total: 20 marks)
QUESTION FIVE
(a) Why is it important to estimate National Income of a country? What difficulties do economists encounter while carrying out such a task particularly in developing countries? (10 marks)
(b) The table below represents economic transactions for country XYZ in billions of shillings:
Total Output Intermediate purchases
Agriculture 30 10
Manufacturing 70 45
Services 55 25
Required:
(i) Calculate the Gross Domestic Product of this economy using the value
added approach. (3 marks)
(ii) If depreciation and indirect taxes equal 8 billion and 7 billion shillings respectively, determine the Net Domestic Product both at market prices and at factor costs. (7 marks)
(Total: 20 marks)
QUESTION SIX
(a)
(i) Define an indifference curve and briefly explain the nature of indifference curves for perfect substitutes and complementary goods. (7 marks)
(ii) Using separate diagrams, illustrate and explain the income and substitution effects of a price rise for both inferior and giffen goods. (10 marks)
(b) (i) Why does marginal rate of substitution decline from left to right along an
indifference curve? (1 mark)
(iii) Define the term marginal propensity to save and show its influence on the multiplier
(2 marks)
(Total: 20 marks)
QUESTION SEVEN
The Kenya Power Supplies Company Ltd. Is the role of electricity in Kenya. This commodity is purchased by two separate consumers, namely (i) commercial users and (ii) domestic users, to whom the company is able to charge different prices or tariffs. Assuming that the major goal of the company is to maximize profits:
(a) How should the company allocate its total output of electricity between the two groups of consumers? (12 marks)
(b) Which group is likely to be charged a higher price? Explain clearly the reasons for your
answer. (4 marks)
(c) What conditions make it possible for the company to change different prices for the same product? (4 marks)
(Total: 20 marks)
QUESTION EIGHT
Write explanatory notes on the following concepts”:
(a) Consumer sovereignty (4 marks)
(b) Cobweb model (4 marks)
(c) Marginal efficiency of capital (4 marks)
(d) Substitutes in production and substitutes in consumption (4 marks)
(e) Export-led growth (4 marks)
(Total: 20 marks)
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