INTRODUCTION TO ECONOMICS

PRACTICE QUESTIONS

QUESTION 1

a. Differentiate the following:

i. Microeconomics and macroeconomics. (4 marks)
ii. Positive and normative statements. (4 marks)
b. With the aid of the Production Possibility Curve (PPC), explain the concept of
scarcity, choice and opportunity cost. (10 marks)
c. Would you advise the country to produce at a point inside the PPC? Give
reasons for your answer. (4 marks)
d. Appraise any three (3) factors that can cause an outward shift of the
production possibility curve (PPC). (6 marks)

QUESTION 2

a. Explain any three (3) market systems of your choice. In your answer include
the advantages and disadvantages of each. (15 marks)
b. Discuss any four (4) reasons why an economy can choose to operate as
mixed economy. (8 marks
c. Discuss how the fundamental economic questions are answered in a free
market economy. (6 marks)

QUESTION 3

a. With the aid of a diagram explain the following:

i. the law of demand. (6 marks)
ii. the law of supply. (6 marks)
b. Explain any five (5) factors that affect demand for a product. (15 marks)
c. Elaborate on any five (5) factors that influence supply of a product.(15 marks)
d. With the aid of a diagram distinguish between;
i. change in demand and change in quantity demanded. (8 marks)
ii. change in supply and change in quantity supplied. (8 marks)

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QUESTION 4

a. With the aid of a diagram , explain the effect of ;

i. An increase in income on the demand of a normal good. (5 marks)
ii. A decrease in cost of production on the supply of a good. (5 marks)
b. With the aid of graphs, explain the effect of the following to either the demand
or supply of cars
i. Subsidy on cost of producing cars. (5 marks)
ii. Increase in the price of fuel. (5 marks)
iii. Improvement in technology used in car manufacturing. (5 marks)

QUESTION 5

a. With the aid of diagram, explain market equilibrium showing clearly

equilibrium price and equilibrium quantity. (8 marks)
b. The table below shows the quantity demanded and quantity supplied of good
Y (all quantities are in tonnes per month)

Price per tonne (Pula) 1000 1500 2000 2500 3000

Quantity demanded 1500 1250 1000 750 500
Quantity supplied 500 750 1000 1250 1500

Required:
i. Draw the demand and supply curves and state the equilibrium price
and quantity. (10 marks)
ii. Explain the market conditions that will result in market surpluses and
shortages of good Y. (6 marks)

c. Distinguish between a price ceiling and a price floor. (4 marks)

QUESTION 6

a. Define the following terms:

i. Price elasticity of demand. (4 marks)
ii. Cross elasticity of demand. (4 marks)
iii. Income elasticity of demand. (4 marks)
iv. Price elasticity of supply. (4 marks)

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 b. Discuss any five (5) factors that affect price elasticity of demand. (15 marks)
c. The price of good X increased from BWP1200 to BWP1500 and this resulted
in quantity demanded decreasing from 2000 units to 1000 units. Calculate and
comment on the price elasticity of demand. (6 marks)
d. A firm has decided to increase the price of its product by 10% .Suppose the
firm’s decision to increase the price of its own product has resulted in an
increase in quantity demanded of another related product from 2000 units to
2500 units. Calculate and comment on the cross elasticity of demand between
firm’s product and the related product. (6 marks)

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