QUESTION
(a) In a certain economy the marginal propensity to save is 0.2 and the autonomous consumption equals 400.
i. Formulate the consumption function.
ii. If the Government's expenditures were to increase by 50% what would be the resultant change in National income.
(b) The demand and supply schedules for carrots in a certain market are given below:
|
Price per ton (Sh '000')
|
Quantity demanded per month (Thousands of tons)
|
Quantity supplied per month (Thousands of tons)
|
|
2
|
110.0
|
5.0
|
|
4
|
90.0
|
46.0
|
|
8
|
67.5
|
100.0
|
|
10
|
62.5
|
115.0
|
|
12
|
60.0
|
122.5
|
Determine the equilibrium quantity and price by graphical method.
(c) Explain how the concept of elasticity guides decisions in the following situations:
(i) Government's tax policy on household consumption.
(ii) Devaluation policy to encourage exports and discourage imports.
Price discrimination by a monopolist. QUESTION
(c) In a certain economy the marginal propensity to save is 0.2 and the autonomous consumption equals 400.
iii. Formulate the consumption function.
iv. If the Government's expenditures were to increase by 50% what would be the resultant change in National income.
(d) The demand and supply schedules for carrots in a certain market are given below:
|
Price per ton (Sh '000')
|
Quantity demanded per month (Thousands of tons)
|
Quantity supplied per month (Thousands of tons)
|
|
2
|
110.0
|
5.0
|
|
4
|
90.0
|
46.0
|
|
8
|
67.5
|
100.0
|
|
10
|
62.5
|
115.0
|
|
12
|
60.0
|
122.5
|
Determine the equilibrium quantity and price by graphical method.
(c ) Explain how the concept of elasticity guides decisions in the following situations:
(iii) Government's tax policy on household consumption.
(iv) Devaluation policy to encourage exports and discourage imports.
Price discrimination by a monopolist.