CPA Economics Exam(2010)

QUESTION ONE
(a) Define the term "price ring"
(b)Outline two factors that would ensure successful implementation of a rice ring.
(c) Distinguish between a "price ceiling" and a "price floor"
(d) Highlight the effect of instituting the following in an economy
(i) Price floors
(ii) Price ceilings

QUESTION TWO
(a) Distinguish between "near money" and "money substitutes"
(b)Explain four factors that would limit the effectiveness of fiscal policy instruments in developing countries.
(c) Define "inflation"
(d) Explain the effects of inflation on the functions of money in an economy.

QUESTION THREE
(a) Using a well labelled diagram, explain the concept of the regressive demand curve.
(b) Explain how the government could influence the allocation of resources in a country.
(c) Outline four advantages of a controlled market system

QUESTION FOUR
Distinguish between the following set of terms.
(a)Depreciation and devaluation of a currency
(b)Expansion path and price consumption curve.
(c)Transfer payment and transfer earnings.
(d)Balance of trade and terms of trade
(e)Gross national product at market price and net national product at factor cost.

QUESTION FIVE
Maji Mazuri Water and Sewerage Company limited is the only water provider in Mjini city. The company supplies water to two distinct markets; domestic and commercial users. The demand for the company's product in the two markets is represented by the following equations; Q1= 101 - 0.5p1 Q2= 160.4 - 0.2P2 where Q1= output sold to domestic users Q2= output sold to commercial users P1= price charged to domestic users P2= price charged to commercial users The unit cost of the company is given by the function C = 160 + 20Q + 18Q2 The total demand fpr the company's output is given by the equation; Q = 200-4P.
Required
(a) The profit maximizing level of output of the two markets.
(b) Price to be charged in the two markets.
(c) The amount of profit the firm would earn if it sold the product at a single price in the two markets and if it discriminates the price charged in the two markets.
(d) The price elasticity of demand of each of the two markets at the equilibrium price and quantity.

QUESTION SIX
(a) Explain the relationship between the short run and long run average cost curve of a firm
(b) State the law of diminishing marginal utility.
(c) With the aid of a well labelled diagram, explain the law diminishing marginal utility.
(d) Highlight the barriers to occupational mobility of labour.

QUESTION SEVEN
(a) Define the term "unemployment"
(b) Explain five reasons why unemployment is a major policy issue in developing countries.
(c) Outline the limitations to cardinal approach in measuring utility.