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QUESTION TWO (20 marks) The following information relates to the Demand for and Supply of Wheat. Price Quantity Demanded (Units) Quantity Supplied (Units) 10 240

QUESTION TWO (20 marks)

The following information relates to the Demand for and Supply of Wheat.

PriceQuantity Demanded (Units)Quantity Supplied (Units)
1024020
2020040
3016080
40120120
5080160
6040200
7020240

  1. Draw an accurate demand and supply curve to illustrate this data and derive the equilibrium price and quantity (6 Marks)

When the market is not in equilibrium we have two situations of either excess supply or of excess demand.

  1. From the above diagram what are the quantities of excess supply and excess demand? (4 Marks)
  2. Explain the causes of excess supply and excess demand with reference to the diagram in (i) (4 Marks)
  3. Explain clearly how the following determine the supply of wheat
  4. Price of inputs
  5. Number of Famers (Firms) producing wheat.
  6. Future price expectations (6 Marks)

QUESTION THREE: (20 marks)

(a). Mr Tobwa of Sinda district engages you as a business consultant for advise concerning two firms Banja Ltd and Tilitonse Investments. He used to work in the bank earning an annual salary of K 5,000. The annual sales for Banja Ltd and Tilitonse Investment are K50,000 and K 47,000 respectively. Mr Tobwa uses his capital which was earning a return of K3,000 to invest into the business. The Rental value of the premises to be used is K800. The annual costs for Banja Ltd and Tilitonse Investments is K40,000 and K 38,000 respectively.

(i) What is the Accounting profit for Banja Ltd and Tilitonse Investments?(2 marks)

(ii) What is the Economic profit for Banja Ltd and Tilitonse Investments? (6 Marks)

(iii) Interpret the results in ( a) ii and advise Mr Tobwa which firm to invest into. (6 Marks)

(b). Economic efficiency in the allocation of resources is attained when the resources are allocated to maximise the satisfaction of the people.

Explain the following concepts of economic efficiency

  1. Production efficiency
  2. Efficiency in distribution
  3. Efficiency in resource allocation (6 Marks)

QUESTION FOUR: (20 marks)

Consider the table below and answer the questions which follow:

Number of WorkersTotal ProductAverage ProductMarginal Product
15
220
340
450
55
660
758
853

  1. Complete the table by filling in the figures for the missing Total Product, Average Product and Marginal Product. [ 8 Marks]
  2. What is the Maximum number of workers the firms should employ in order to produce where there are increasing marginal returns? [3 Marks]
  3. What is the Minimum number of workers the firms should employ in order to produce where there are decreasing marginal returns? [3 marks]
  4. What is the Maximum number of workers the firm should employ in order to produce where there are negative marginal returns? [3 marks]
  5. Discuss the three stages of short-run production (3 marks)

QUESTION FIVE:(20 marks)

(a) Consider the market for minivans for each of the events listed below, indicate whether demand or supply is increased or decreased. Then show the effect on the price and quantity of minivans. (minivans are cars that are used to transport people).

  1. People decide to have more children. (4 marks)
  2. A strike by steelworkers raises steel prices. (4 marks)
  3. Engineers develop new automated machinery for the production of minivans. (4 marks)
  4. The price of station wagons rises. (station wagons are cars that are used to transport people). (4 marks)

(b) With the aid of a production possibility frontier, explain how the concepts of scarcity, choice and opportunity cost are related. Use any two goods of your choice for the vertical and horizontal axis. (4 marks)

QUESTION SIX:(20 marks)

(a)List and explain three factors that affect the own price elasticity of a good.(6 marks)

Answer the following questions based on the accompanying diagram below. The line labeled D is the demand curve for a good.

Price (K)

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