Question One

(a) Consider the following estimated demand and supply functions of maize flour in a

region:

Qd = 16,000 - 4P and Qs = 8,800 + 8P

Where Qd, Qs = quantity demanded and supplied in hundreds of bags; P = price in Ksh.

Analyze mathematically the effect of levying a specific tax of Ksh20.00 per bag, on the

equilibrium outcome. Show the distribution of the tax on consumers, suppliers and

government. (10 marks)

(b) i) Explain ways in which a manager's job is an economic one. (2marks)

ii) Suppose the production possibilities frontier for two goods (X and Y) is given by

the equation

X2+ Y2= 200

What is the opportunity cost of producing one more unit of X in terms of Y at the point

where X = 12 units? (3 marks)

(c) Using examples where appropriate, examine three factors that affect elasticity of supply

of a commodity and indicate how the concept can be of help to a manager.

(5 marks