QUESTION ONE
a) Explain any FOUR features of market/capitalist economy.
b) As a result of increase in the price of commodity X from Kshs 35 to Kshs 40, there was an increase in demand for commodity Y from 25 million to 30 million units.
i) What type of elasticity is referred to as above and why?
ii) Calculate the elasticity in i) above.
iii) Interpret your results in ii) above.
c) Describe the benefits of price mechanism theory in the allocation of resources.
QUESTION TWO
a) The following economic functions have been derived by the Finance Manager of Sagecon Services Ltd:
Qa = 3P2 – 4P and
Qb= 24 – P2, where P represents price and Q is quantity.
Required:
i) Which of the two functions represent a demand curve, supply curve and explain why?
ii) At what values of price and quantity is the market in equilibrium?
b) Explain any FIVE factors that can cause an increase in supply of a commodity in developing
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