PAPER 2
[80 marks]

Answer four questions in all. One question only from Section A and any three questions from Section B.



You are reminded of the importance of clarity of expression and
orderly presentation of relevant materials.


All questions carry equal marks.



SECTION A

Answer one question only from this section.


  1. The production possibility curve (PPC) in Figure 1 below shows different combinations of clothes and shoes that can be produced by a country. Study the graph and answer the questions that follow.

    Figure 1

    (a) State three efficient combinations of clothes and shoes that can be produced.
    [6 marks]

    (b) Identify two points that are unattainable in production. Give a reason for your answer.
    [3 marks]

    (c) Identify two points that are inefficient in production. Give a reason for your answer.
    [3 marks]

    (d) What is the opportunity cost of shifting from point L to P?
    [2 marks]

    (e)     (i) State two things the country can do in order to produce at point R?R?
    [4 marks]

    (e)     (iI) If there is a parallel shift of the curve to point R, what does it signify in the economy?
    [2 marks]


  2. Table 1 below shows the relationship between the input of labour employed and the output of wheat produced on 3 hectares of land. 1 kg of wheat is sold for $ 1.00 and the wage rate per labour is $ 5.00. Study the table and answer the questions that follow.

    Figure 1

    (a) Calculate the average product of labour when the labour input employed is:

        (i)    1;
                [2 marks]

        (ii)    3;
                [2 marks]

    (b) Calculate the marginal product of labour at all levels of labour input employed.
    [8 marks]

    (c) At what level(s) of labour input employed is the farmer experiencing:

        (i)    increasing returns;
                [2 marks]

        (ii)    diminishing returns?;
                [2 marks]

    (d) From your answers in (c)(ii) above, give a reason for the diminishing marginal product of labour.
    [4 marks]


  3. SECTION B

    Answer three questions only from this section.


  4. (a) Define elasticity of demand.
    [2 marks]

    (b) Explain the effect of price elasticity of demand on:
        (i)    government policy of currency devaluation as it affects imports;
                [6 marks]

        (ii)    the total revenue of a monopolist;
                [6 marks]

        (iii)    the total revenue of a government from an indirect tax.
                [6 marks]

  5. (a) Define minimum wage.
          [2 marks]

    (b) Identify any Two factors that can encourage an employer to offer a higher wage rate are:
          [6 marks]

    (c) With the aid of a diagram, explain how fixing a minimum wage can create unemployment.
          [6 marks]

  6. (a) Define cash crop production.
          [2 marks]

    (b) Explain any three contributions of cash crop production to the economy of a country.
          [6 marks]

    (c) Identify any three causes of unstable incomes of cash crop farmers.
          [6 marks]

  7. (a) Explain the following concepts:
        (i)    per capita income;
                [3 marks]

        (ii)    standard of living.
                [3 marks]

    (b) Describe the relationship between per capita income and standard of living.
          [5 marks]

    (c) Highlight any three problems involved in calculating national income using the income approach.
          [9 marks]

  8. (a) With an example, define public expenditure.
          [3 marks]

    (b) Explain how public expenditure can be managed in order to:
        (i)    curb inflation;
                [4 marks]

        (ii)    reduce unemployment.
                [4 marks]

    (c) Outline any three sources of funds for financing public expenditure.
          [9 marks]

  9. (a) Differentiate between the International Monetary Fund (IMF) and the World Bank.
          [2 marks]

    (b) Outline four contributions of the World Bank to the economic development of a country.
          [6 marks]


END OF PAPER

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