Question 1

A consumer spends all his income on the purchase of two commodities X and Y, whose prices are Ksh 30 and Ksh 20 Respectively. The consumers income is Ksh 12, 000 per month.

• Show relevant budget line and indifference curves indicating the equilibrium position if he/she spending his income equally on each commodity
• what is the effect of an increase in the consumers income by 100% per month
• show what will happen to the consumers equilibrium when the price of x doubles while price of y remains constant
• explain why the marginal rate of substitution declines from left to right along an indifference curve.

Question 2

• Re- state the condition for profit maximization of a firm
• explain why agricultural wages tend to be lower than industrial wages
• explain why wage differentials occur in the same occupation