ECON 111

EGERTON UNIVERSITY

UNIVERSITY EXAMINATIONS
NJORO CAMPUS

FIRST SEMESTER, 2020/2021 ACADEMIC YEAR

FIRST YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF ARTS

(GENERAL, ECONOMICS &SOCIOLOGY, ECONOMICS & HISTORY) AND
BACHELOR OF SCIENCE(ECONOMICS & STATISTICS, MATHS,ACTUARIAL,
STATISTICS, DTAM & FOST,AGRICULTURAL ECONOMICS & AGRIBUSINESS
MANANGEMENT)

ECON111: PRINCIPLES OF MICROECONOMICS

STREAM: BA (GEN, ECON&SOCI, ECON&HIST) TIME: 2 HRS

BSC (ECON&STAT, MATHS, ACTURIAL, STAT, DTAM &
FOST, AGEC & AGBM)

EXAMINATION SESSION: MAY YEAR: 2021

INSTRUCTIONS:
i. Answer Question ONE and any other TWO questions.
ii. Question ONE carries 30 Marks and the rest 20 Marks each.
iii. Do not write on the question paper
iv. Apart from calculators, all other devices and written materials are not allowed in
the examination room.
v. All personal items MUST be left outside or in front of the examination room.

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 ECON 111

QUESTION ONE (30 MARKS)

(a) Explain the factors that determine the supply of a commodity. (5 marks)
(b) Distinguish between change in quantity supplied and change in supply.
(2 marks)
(c) Explain the exceptions to the law of supply. (3 marks)
(d) Define own price elasticity of supply of a commodity (1 mark)
(e) You are given the demand schedule:
Price of X Quantity Demanded of Y
10 100
15 80
20 70
25 65
(i) Calculate the cross elasticity of demand when the price increased from 15 to
20. (2 marks)
(ii) Interpret the value obtained in (e) (i) above. (1 mark)
(iii) Explain the factors that determine the cross elasticity of demand for a
commodity. (5 marks)

(f) Explain the factors that influence the demand for a commodity. (5 marks)
(g) Outline the factors that influence the price elasticity of demand. (5 marks)
(h) Explain the practical uses of the concept of elasticity. (5 marks)

QUESTION TWO (20 MARKS)

(a) Distinguish between monopoly and perfectly competitive firms. (9 marks)
(b) State the sources of monopoly power. (5 marks)
(c) Explain the following concepts:
(i) Price discrimination (3 marks)
(ii) Product differentiation (3 marks)

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 ECON 111

QUESTION THREE (20 MARKS)

(a) Define an indifference curve. (1 mark)
(b) State the properties of indifference curve. (4 marks)
(c) Assume a consumer uses commodity X and Y. Draw indifference curves to show the
following:
(i) The goods are perfect substitutes (1 mark)
(ii) The two goods are complements (1 mark)
(d) Define a budget line. (1 mark)
(e) Using indifference curve and budget line illustrate and explain the equilibrium of a
consumer. (4 marks)
(f) Distinguish between:
(i) Price consumption curve and income consumption curve. (4 marks)
(ii) Inferior good and normal good. (4 marks)

QUESTION FOUR (20 MARKS)

(a) Define an isoquant. (1 mark)
(b) Explain the conditions underlying the shape of the isoquant. (2 marks)
(c) Define the term isocost. (1 mark)
(d) Using isocost and isoquant illustrate and explain the equilibrium of the producer.
(4 marks)
(e) Using a diagram explain the expansion path of a firm. (4 marks)
(f) Distinguish between constant and increasing returns to scale. (4 marks)
(g) With the help of diagrams explain the difference between decreasing and increasing
costs of production. (4 marks)

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 ECON 111

QUESTION FIVE (20 MARKS)

(a) Distinguish between:
(i) Capitalism and socialism. (4 marks)

(ii) Microeconomics and macroeconomics. (4 marks)

(iii) Change in demand and change in quantity demanded (3 marks)

(b) (i) State the assumptions of perfect competition. (3 marks)

(ii) Explain the short-run equilibrium in perfect competition for a firm attempting to
minimize losses. . (6 marks)

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 ECON 111

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