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 STRATHMORE INSTITUTE 
DIPLOMA IN ENTREPRENEURSHIP 
END OF SEMESTER EXAMINATION 
DE 1201 - Introduction to economics  
 
DATE: 15th August 2019                Time: 2 Hours 
 
Instructions 
1. This examination consists of FOUR questions. 
2. Answer Question ONE (COMPULSORY) and any other TWO questions. 
3.         Do not write on the question paper. 
 
QUESTION ONE         
(a) Define the term “consumer surplus”.(2 marks) 
(b) Given below is the demand schedule: 
Price (Ksh.)  10  8  6  4 
Quantity (units) 0  2  4  6 
Required: 
With the aid of a graph, determine the value of consumer surplus if a single price of Sh. 5 
prevails in the market.        (6marks) 
(c) Explain the factors that could lead to a downward shift in the demand curve. (6 marks) 
d) Outline four demerits of direct taxation to an economy.     (4marks) 
e) Analyze three positive and three negative effects of a monopoly market structure in an 
economy.          (6 marks) 
f) Explain three factors that contribute to wage differentials between different occupations in a 
country.          (6 marks 
 
 
 
 
 
QUESTION TWO          
(a) Describe four uses of national income statistics.   (4 marks) 
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b)  Enumerate five factors that determine the price elasticity of demand of a commodity.  
         (5 marks) 
c)  Outline six disadvantages of a free market economic system.  (6 marks)  
 
QUESTION THREE        
a) Suppose in a two commodity market model the supply and demand functions are given 
as: 
QS1=-3+4P1     QS1=-18+4P2 
QD1=4-P1+0.5P2    QD2=10+P1-P2 
  
Using the functions provided, calculate the equilibrium values of prices and quantities  
         (8 marks) 
b) Summarise seven barriers to occupational mobility of labour as a factor of production.  
         (7 marks) 
 
QUESTION FOUR         
a) Using a suitable diagram, explain the three stages in the law of variable proportions.
           (10 marks) 
b)  Identify the characteristics of an oligopolistic market structure.   (5 marks)  
 
 
QUESTION FIVE 
a) With reference to demand and supply analysis, identify six effects of fixing the 
maximum price of a commodity below the equilibrium price.   (6 marks) 
b) Summarise nine reasons why unemployment is a major policy issue in developing 
countries          (9 marks)