Page 1 of 11 STRATHMORE INSTITUTE DIPLOMA IN ENTREPRENEURSHIP END OF SEMESTER EXAMINATIONS INRODUCTION TO ECONOMICS DATE: 16th December 2021 Time: 2 Hours Instructions 1. This examination consists of TWO Sections. 2. Answer ALL Questions in section A (COMPULSORY) and any other TWO questions in section B 3. Do not write on the question paper. SECTION A (COMPULSORY) Question 1 An increase in the price of a product will reduce the amount of it purchased because: A. Supply curves are up sloping. B. The higher price means that real incomes have risen. C. Consumers will substitute other products for the one whose price has risen. D. Consumers substitute relatively high-priced for relatively low-priced products. Question 2 Which of the following will not cause the demand for product K to change? A. a change in the price of close-substitute product J B. an increase in consumer incomes C. a change in the price of K D. a change in consumer tastes Page 2 of 11 Question 3 Which of the following would not shift the demand curve for beef? A. a widely publicized study which indicates beef increases one's cholesterol A. a reduction in the price of cattle feed B. An effective advertising campaign by pork producers C. A change in the incomes of beef consumers Question 4 If the price of K declines, the demand curve for the complementary product J will: A. Shift to the left. B. Decrease. C. Shift to the right. D. Remain unchanged. Question 5 A firm's supply curve is upsloping because: A. The expansion of production necessitates the use of qualitatively inferior inputs. B. Mass production economies are associated with larger levels of output. C. Consumers envision a positive relationship between price and quality. D. Beyond some point the production costs of additional units of output will rise. Question 6 The price of jet fuel falls. This fall shifts the A) Supply curve of airplane trips rightward. B) Demand curve for airplane trips leftward. C) Demand curve for airplane trips rightward. D) Supply curve of airplane trips leftward. Page 3 of 11 Question 7 Let Qd stand for the quantity demanded, Qs stand for the quantity supplied, and P stand for price. If Qd = 20 - 2P and Qs = 5 + 3P, then the equilibrium price is A) $2. B) $3. C) $4. D) $1. Question 8 Let Qd stand for the quantity demanded, Qs stand for the quantity supplied, and P stand for price. If Qd = 20 - 2P and Qs = 5 + 3P, then the equilibrium quantity is A) 14. B) 5. C) 20. D) 3. Question 9 If a rightward shift of the supply curve leads to a 6 percent decrease in the price and a 5 percent increase in the quantity demanded, the price elasticity of demand is A) 0.83. B) 0.30. C) 0.60. D) 1.20. Page 4 of 11 Question 10 A 10 percent increase in the quantity of spinach demanded results from a 20 percent decline in its price. The price elasticity of demand for spinach is A) 0.5. B) 20.0. C) 2.0. D) 10.0. Question 11 The demand for movies is unit elastic if A) Any increase in the price leads to a 1 percent decrease in the quantity demanded. B) A 5 percent decrease in the price leads to an infinite increase in the quantity demanded. C) A 5 percent increase in the price leads to a 5 percent decrease in the quantity demanded. D) A 5 percent increase in the price leads to a 5 percent increase in total revenue. Question 12 Which of the following is the most competitive market structure? A. Perfect competition B. Monopolistic competition C. Oligopoly D. Monopoly Question 13 Which of the following is the least competitive market structure? A. Perfect competition B. Monopolistic competition C. Oligopoly D. Monopoly Page 5 of 11 Question 14 Which of the following is NOT a feature of monopolistic competition? A. Numerous sellers B. Product differentiation C. Numerous buyers D. Homogenous products Question 15 In which form of market structure would price be the key factor when competing? A. Monopoly B. Oligopoly C. Monopolistic competition D. Perfect competition Question 16 The average income of the country is A. Per capita income B. Disposable income C. Inflation rate D. Real national income Question 15 Which of the following best describes the concept of economic growth? A. Increase in the welfare of the citizens B. Increase in real per capita income C. Reduction in prices of goods and services D. Increase in the exchange rate of country’s currency E. Increase in industries established in a country Page 6 of 11 Question 16 The following are problems associated with development planning in the less developed nations except. A. Inadequate statistical data B. Lack of proper co-ordination of various units in the system C. Political stability in the country D. frequent changes in socio-economic and political policies E. Shortage of skilled and technical manpower Question 17 Which of the following does not stimulate the economic growth of a nation? A. Availability of skilled human recourses B. Accumulation of capital C. Expansion of the knowledge D. Depletion of the environmental quality E. Availability of mineral resources Question 18 When aggregate demand exceeds aggregate supply, the result is A. cost push inflation B. demand-pull inflation C. imported inflation D. spiral inflation E. creeping inflation Question 19 The following are negative effects of inflation except: A. Increase in real income B. Discourages lending C. Borrowers gain Page 7 of 11 D. Value of imports may increase E. Inefficiency in production Question 20 Which of the following can be used to check inflation caused by excess demand? A. Reduction in cash reserve ratio B. Increase in government expenditure C. Reduction in income taxes D. Increase in discount rates E. Purchase of treasury bills in open market operation Question 21 The presumption that the average consumer will always maintain the utility maximization position in his spending is referred to as A. Cardinal utility B. Consumer equilibrium C. Consumer rationality D. Diminishing marginal utility E. Constant marginal utility of money Question 22 Which of the following indicates the negative slope of the indifference curve? A. Marginal rate of substitution B. Axiom of transitivity C. Budget schedule D. Consumer equilibrium E. Ordinal utility Page 8 of 11 Question 23 Which of the following gives the reason why it would be logically impossible for two indifference curves to cross? A. The law of diminishing marginal utility B. Axiom of transitivity C. Assumption of consumer rationality D. The negative slope of the indifference curve E. The law of diminishing marginal rate of substitution Question 24 Which of the following does the principle of diminishing marginal utility say about what happens when a consumer consumes more of a product? A. The consumer's total utility will be unaffected. B. The consumer's total utility will diminish. C. The consumer's marginal utility will diminish. D. The consumer's marginal utility will become negative Question 25 The output per unit of the variable factor employed is called: A. Marginal product B. Average product C. Total product D. Average cost E. Productivity of labour Question 26 Law of variable proportion is valid when: A. Only one input is variable and all other inputs are fixed B. All factors are constant C. All inputs are varied in the same proportion. Page 9 of 11 D. Only one input is fixed and all other inputs are variable Question 27 If you know that with 8 units of output, average fixed cost is $12.50 and average variable cost is $81.25, then total cost at this output level is: A. $93.75. B. $97.78. C. $750. D. $880. Question 28 Variable costs are: A. Sunk costs. B. Multiplied by fixed costs. C. Costs that change with the level of production. D. Defined as the change in total cost resulting from the production of an additional unit of output. Question 29 The short run is a time period in which: A) All resources are fixed. B) The level of output is fixed. C) The size of the production plant is variable. D) Some resources are fixed and others are variable Question 30 Which of the following is a variable cost in the short run? A) Rent on the factory B) Wages paid to factory labour C) Interest payments on borrowed financial capital D) Payment on the lease for factory equipment Page 10 of 11 E) Salaries paid to upper management (TOTAL: 30 MARKS) SECTION B Question two a) Enumerate five advantages and five disadvantages of a planned economic system. (10 marks) b) Enumerate five factors that could lead to a rightward shift of the supply curve. (5 marks) (TOTAL: 15 MARKS) Question three (a) Highlight five strategies that could be implemented by governments in developing countries to spur growth in the industrial sector. (5 marks) (b) With the aid of a diagram explain the production possibility frontier. (5 marks) (c) Summarize five ways through which the government could influence the allocation of resources in a free market economy. (5 marks) (TOTAL: 15 MARKS) Question 4 (a) Discuss five policy measures that developing countries could adopt to reduce regional imbalances. (5 marks) b) Discuss five canons of a good taxation system. (10 marks) (TOTAL: 15 MARKS) Question five a) Analyse six factors that influence the cost behaviour of a firm. ( 6 marks) b) Summarize five causes of inflation in developing countries. (5 marks) c) The following information relate to the price per unit and quantity supplied of a certain product: Page 11 of 11 Price per unit  (Sh.)   12  10  8  5  2  Quantity  supplied   ( Units)  12,000  11,000  9,000  6,000  0  Required: Price elasticity of supply when price decreases from Sh.10 per unit to Sh.5 per unit. Interpret your result. (4 marks) (TOTAL: 15 MARKS)