ECONOMICS REVISION KIT FOR KASNEB COURSES (PAST PAPERS WITH ANSWERS)

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Complete copy of ECONOMICS REVISION KIT is available in SOFT copy (Reading using our MASOMO MSINGI PUBLISHER’S APP) and in HARD copy 

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ECONOMICS

 

CPA FOUNDATION LEVEL

CIFA FOUNDATION LEVEL

 

REVISION KIT

 

TOPICALLY ARRANGED

Updated With

August 2021

Past Paper with Answers

 

 

 

INTRODUCTION

Following our continued effort to provide quality study and revision materials at an affordable price for the private students who study on their own, full time and part time students, we partnered with other team of professionals to make this possible.

This Revision kit (Questions and Answers) contains kasneb past examination past papers and their suggested answers as provided a team of lecturers who are experts in their area of training. The book is intended to help the learner do enough practice on how to handle exam questions and this makes it easy to pass kasneb exams.

Special appreciation and recognition to the lecturers who have helped in the development of our materials, These are: FA Kegicha William Momanyi (MBA Accounting, CPA, CSIA and CCP), Johnmark Mwangi (MSc Finance, CPAK, BCom), FA Bramwel Omogo (B.Sc. Actuarial Science, CIFA, CIIA), CPA Dominic Rasungu, CPA Japheth Mutuku and CPA Lawrence Ambunya among others. 

SAMPLE WORK

Complete copy of ECONOMICS REVISION KIT is available in SOFT copy (Reading using our MASOMO MSINGI PUBLISHER’S APP) and in HARD copy 

Phone: 0728 776 317

Email: info@masomomsingi.com

 

UNIT DESCRIPTION

This paper is intended to equip the candidate with knowledge, skills and attitude to identify the impact and interaction of economic principles in various situations and apply the principles in decision making.

 

LEARNING OUTCOMES

A candidate who passes this paper should be able to:

  • Apply basic mathematical and graphical techniques to analyse economic relationships
  • Apply the knowledge of economics in decision making
  • Analyse economic problems and suggest possible policy related recommendations
  • Apply knowledge of economics in international trade and finance
  • Relate economics to income levels and development in a country

 

CONTENT

 

MICROECONOMICS

           

  1. Introduction to economics
  • Definition of economics
  • Basic economic concepts: economic resources, human wants, scarcity and choice, opportunity cost, production possibility curves/frontiers
  • Scope of economics: Micro and macro economics
  • Methodology of economics: positive and normative economics, scientific methods, economics as a social science.
  • Economic systems: planned economy, free market economy, mixed economy
  • Consumers’ sovereignty and its limitations

 

  1. Demand, supply and determination of equilibrium
  • Demand analysis
  • Definition
  • Law of demand
  • Exceptional demand curves
  • Individual demand versus market demand
  • Factors influencing demand
  • Types of demand
  • Movement along and shifts of demand curves
  • Elasticity of demand
  • Types of elasticity: price, income and cross elasticity
  • Measurement of elasticity; point and arc elasticity
  • Factors influencing elasticity of demand
  • Application of elasticity of demand

 

  1. Supply analysis
  • Definition
  • Individual versus market supply
  • Factors influencing supply
  • Movements along and shifts of supply curves
  • Definition of elasticity of supply
  • Price elasticity of supply
  • Factors influencing elasticity of supply
  • Application of elasticity of supply

 

  1. Determination of equilibrium
  • Interaction of supply and demand, equilibrium price and quantity
  • Mathematical approach to equilibrium analysis
  • Stable versus unstable equilibrium
  • Effects of shifts in demand and supply on market equilibrium
  • Effect of taxes and subsidies on market equilibrium
  • Price controls: Maximum and Minimum price control
  • Price decontrol: Effect of Minimum and Maximum price decontrol
  • Reasons for price fluctuations in agriculture

 

  1. The theory of consumer behaviour
  • Approaches to the theory of the consumer – cardinal versus ordinal approach
  • Utility analysis, marginal utility (MU), law of diminishing marginal utility (DMU)
  • Limitations of cardinal approach
  • Indifference curve analysis; Indifference curve and budget line
  • Consumer equilibrium; effects of changes in prices and incomes on consumer equilibrium
  • Derivation of a demand curve
  • Applications of indifference curve analysis: substitution effect and income effect for a normal good, inferior good and a giffen good; derivation of the Engels curve
  • Consumer surplus/Marshallian surplus
  1. The theory of a firm: The theory of production
  • Factors of production
  • Mobility of factors of production
  • Short run analysis
  • Total product, average and marginal products
  • Stages in production and the law of variable proportions/the law of diminishing returns
  • Long run analysis
  • Isoquant and isocost lines
  • The concept of producer equilibrium and firm’s expansion curve
  • Law of diminishing returns to scale
  • Demand and supply of factors of production
  • Wage determination: demand and supply for labour
  • Wage differential
  • Trade unions: functions, effectiveness and challenges
  • Transfer earnings and economic rent

 

  1. The theory of costs
  • Short run costs analysis and size of the firm’s total cost, fixed cost, average cost, variable costs and marginal cost
  • Long run costs analysis
  • Optimal size of a firm
  • Economies and diseconomies of scale

 

  1. Market structures
  • Definition of a market
  • Necessary and sufficient conditions for profit maximisation
  • Mathematical approach to profit maximisation
  • Output, prices and efficiency of: Perfect competition, monopoly, monopolistic competition, oligopolistic competition

 

  

  1. MACROECONOMICS

 

  1. National income
  • Definition of national income
  • Circular flow of income
  • Methods/approaches to measuring national income
  • Concepts of national income: gross domestic product (GDP), gross national product (GNP) and net national product (NNP), net national income (NNI) at market price and factor cost, disposable income
  • Difficulties in measuring national income
  • Uses of income statistics
  • Analysis of consumption, saving and investment and their interaction in a simple economic model
  • Mathematical approach to the determination of equilibrium national income
  • Inflationary and deflationary gaps
  • The multiplier and accelerator concepts
  • Business cycles/cyclical fluctuations

 

 

  1. Economic growth, economic development and economic planning
  • The differences between economic growth and economic development
  • Actual and potential growth
  • The benefits and costs of economic growth
  • Determinants of economic development
  • Common characteristics of developing countries
  • Obstacles to economic development
  • The need for development planning
  • Short term, medium term and long-term planning tools
  • Challenges to economic planning in developing countries

 

  1. Money and banking

     

     Money

  • The nature and functions of money
  • Demand and supply of money
  • Theories of demand for money: The quantity theory, the Keynesian liquidity preference theory

 

    The banking system

  • Definition of commercial banks
  • The role of commercial banks and non-banking financial institutions in the economy
  • Credit creation
  • Definition of central bank
  • The role of the central bank; traditional and changing role in a liberalised economy, such as financial sector reform, exchange rate reform
  • Monetary policy, definition, objectives, instruments and limitations
  • Classical theory of interest rate determination
  • Interest rates and their effects on the level of investment, output, inflation and employment
  • Harmonisation of fiscal and monetary policies
  • Simple IS – LM Model
  • Partial equilibrium and general equilibrium

 

  1. Inflation and unemployment
  • Inflation
  • Definition and types of inflation
  • Causes of inflation: cost push and demand pull
  • Effects of inflation
  • Measures to control inflation

 

  1. Unemployment
  • Definition of unemployment
  • Types and causes of unemployment
  • Control measures of unemployment
  • Relationship between unemployment and inflation: The Phillips curve

 

  1. Agriculture and Industry
  • Role of agriculture in economic development
  • Challenges facing agricultural sector in developing countries
  • Policies to improve the agricultural sector
  • Role of industry in economic development
  • Benefits of small scale industries in developing countries
  • Obstacles to industrial development in developing countries
  • Policies to enhance industrial development in developing countries

 

  1. International trade and finance
  • Definition of International trade, advantages and disadvantages
  • Theory of absolute advantage and comparative advantage
  • World trade organisation (WTO) and concerns of developing countries
  • Protection in international trade
  • Regional integration organisations, commodity agreements and the relevance to less developed countries (LDCs)
  • Terms of trade, balance of trade, balance of payments (causes and methods of correcting deficits in balance of payments)
  • Exchange rates: Types of foreign exchange regimes, factors influencing exchange rates, foreign exchange reserves
  • Foreign Direct Investment: case for and case against FDI
  • Foreign Aid: Case for and case against foreign aid
  • Bretton Woods financial institutions: International Monetary Fund (IMF) and World Bank
  • Foreign debt management: causes, consequences of excessive debt and interventions
  • Structural Adjustment Programmes (SAPs) and their impacts on the LDCs

 

  

TOPICS                                                                                               PAGE NUMBERS

 

 

PAST PAPERS QUESTIONS

 

Topic 1: Introduction to economics………………………………………………………11

Topic 2: Demand, Supply and Determination of equilibrium……………………….…..15

Topic 3: The theory of consumer behaviour………………………………………..……25

Topic 4: The theory of a firm……………………………………………………..…..…29

Topic 5: Market structures…………………………… ………………………..…………40

Topic 6: National income……………………………………………………………………..48

Topic 7: Economic growth, economic development and economic planning…….……..60

Topic 8: Money and banking……………………………………………………………..65

Topic 9: Inflation and unemployment…………………………… ………………..…….73

Topic 10: Agriculture and Industry………………………………………………….…..78

Topic 11: International trade and finance……………………………………..….………80

 

 

 

PAST PAPERS ANSWERS

Topic 1: Introduction to economics………………………………………………………87

Topic 2: Demand, Supply and Determination of equilibrium……………………….…101

Topic 3: The theory of consumer behaviour………………………………………..….131

Topic 4: The theory of a firm……………………………………………………..……152

Topic 5: Market structures…………………………… ………………………..………189

Topic 6: National income……………………………………………………………………216

Topic 7: Economic growth, economic development and economic planning……..…..242

Topic 8: Money and banking……………………………………………………….…..258

Topic 9: Inflation and unemployment…………………………… ……………………..285

Topic 10: Agriculture and Industry…………………………………………………….301

Topic 11: International trade and finance………………………………… …..………..310

 

 SAMPLE QUESTIONS

 

TOPIC 1

 

INTRODUCTION TO ECONOMICS

 

 QUESTION 1

August 2021 Question Six C

(c)     (i)     Define the term “free enterprise economic system.”                             (1 mark)

(ii)    Highlight four economic advantages of free enterprise economic system.

(4 marks)

QUESTION 2

May 2021 Question One A

Evaluate four ways in which the government could influence allocation of resources in a country.                                                                                                                  (8 marks)

 

QUESTION 3

May 2021 Question One C

(i)  Define the term “Consumer Sovereignty” as used in economics.                  (2 marks)

(ii) Summarise six limitations of consumer sovereignty in an economy.             (6 marks)

 

QUESTION 4

November 2020 Question One B

Using suitable examples, differentiate between the following terms as used in economics:

  • “Basic human wants” and “secondary human wants”.          (4 marks)
  • “Public good” and “merit good”.                                                  (4 marks)
  • “Stable equilibrium” and unstable equilibrium”.           (4 marks)

 

QUESTION 5

November 2020 Question Two B

Citing four examples, explain the significance of mobility of factors of production.

(8 marks)

QUESTION 6

November 2019 Question One A

Examine four limitations of a planned economic system.                                     (4 marks)

 

QUESTION 7

November 2019 Question One B

With the aid of a diagram, explain the concept of production possibility curve.

(5 marks)

QUESTION 8

November 2019 Question Two A

Evaluate three fundamental economic issues that a society has to address to minimise the problem of scarcity of resources.                                                                                   (6 marks)

 

QUESTION 9

May 2019 Question Two A

(i) Enumerate five characteristics of a free market economic system.                  (5 marks)

(ii) State five advantages of a free market economic system.                               (5 marks)

 

QUESTION 10

November 2018 Question One A

Differentiate between “economic resources” and “non economic resources”.  (1 mark)

 

QUESTION 11

November 2018 Question One B

(i) Explain the term “consumer sovereignty” as used in economics.                  (1 mark)

(ii) Outline eight factors that hinder consumers’ sovereignty.                           (8 marks)

 

QUESTION 12

November 2018 Question Four A

Highlight five characteristics of a mixed economic system.                                 (5 marks)

 

QUESTION 13

November 2017 Question One D

Enumerate five advantages and five disadvantages of a planned economic system.  (10 marks)                                                                                                                                                                                                                                                                                                                                                                  

QUESTION 14

May 2017 Question One A

Highlight four steps followed in the scientific method used in economics.        (4 marks)

 

QUESTION 15

May 2017 Question One D

Summarise five applications of opportunity cost in decision making.                (5 marks)

QUESTION 16

November 2016 Question One B

Outline six advantages of a controlled market system.                                       (6 marks)

 

QUESTION 17

May 2016 Question One B and C

With the aid of a diagram, explain the production possibility frontier.                 (5 marks)

 

QUESTION 18

May 2016 Question One B and C

Summarise five ways through which the government could influence the allocation of resources in a free market economy.                                                                        (5 marks)

 

 

TOPIC 2

 

DEMAND, SUPPLY AND DETERMINATION OF EQUILIBRIUM

 

QUESTION 1

August 2021 Question One A

  1. Highlight four factors that determine the supply of a good or service. (4 marks)
  2. Using appropriate diagrams, explain the difference between “a movement along a supply curve” and “a shift in a supply curve”. (8 marks)

 

QUESTION 2

August 2021 Question Two C

The government has given a subsidy on the consumption of commodity Y.

Using a diagram for illustration, explain the effect of the above action on market equilibrium for commodity Y.                                                                         (5 marks)

 

SAMPLE ANSWERS

TOPIC 1 

INTRODUCTION TO ECONOMICS

 

QUESTION 1

August 2021 Question Six C

(i)     Definition of the term “free enterprise economic system.”              

Refers to an economic system where the price mechanism is given a free reign in resource allocation. Competition is the driving force of free enterprises, resulting in greater efficiency and lower prices for the consumer.

            

(ii)    Economic advantages of free enterprise economic system.           

  1. Absence of red tape
  2. Freedom to innovate
  3. Customers drive choice

Incentive: people are encouraged to work hard because opportunities exist for individuals to accumulate high levels of wealth

 

QUESTION 2

May 2021 Question One A

Ways in which the government could influence allocation of resources in a country

  • Indirect taxes: indirect taxes can be used to raise the price of de-merit goods and products with negative externalities designed to increase the opportunity cost of consumption and therereduce consumer demand towards a socially optimal level.
  • Subsidies: subsidies to consumers will lower the price of merit goods. They are designed to boost consumption and output of products with positive externalities – remember that a subsidy causes an increase in market supply and leads to a lower equilibrium price.
  • Provision of goods and services: Because of privatization, the state owned sector of the economy is much smaller than it was years ago. State funding can also be used to provide merit goods and services and public goods directly to the public.
  • Tax relief: the government may offer financial assistance such as tax credits for business investment in research and development. Or a reduction in corporation tax designed to promote new capital investment and extra employment.
  • Legislation and regulation. employment laws may offer some legal protection for workers setting maximum working hours or providing a price-floor in the labor market through the setting of a minimum wage regulation may be used to introduce fresh competition into a market- for example breaking up the existing monopoly power of service provider.

 

QUESTION 3

May 2021 Question One C

(i)  Term “Consumer Sovereignty” as used in economics. (Nov 2018 1B)       

This is an economic belief that societal welfare is maximized when consumers are at liberty to choose goods to satisfy their needs. Simply, the consumer is the best judge of their product choices.

 

(ii) Limitations of consumer sovereignty in an economy.  

  • Government policy through taxes and subsidies can influence choices made consumer.
  • Nature of economic system e.g. in a command economy, government dictates what a consumer should do.
  • Irrationality of consumer
  • Advertising also restricts the consumer’s choice.
  • Type of market e.g. in monopolies consumers have limited choice.
  • Income of consumer products are only made for rich guy and the choices of the poor are never considered
  • In availability of goods means consumers has to use what is available.
  • Technical factors may impinge on freedom of consumer. For example the existing technology may not allow producers to make goods desired consumers.
  • Habit individual consumers have different and are reluctant to charge

QUESTION 4

November 2020 Question One B

Differentiation of terms

  • “Basic human wants” and “secondary human wants”.

Basic human wants are the essential needs in life such that one cannot do without them. They include food, shelter and clothing. They have the following characteristics: they cannot be postponed, they are felt needs, they are satisfied before secondary wants and one cannot do without them.

Secondary wants are requirements for comfortable and luxurious life. Comforts provide good life, beyond the mere survival; it includes such needs like education, medicare and security. Luxuries include even much more flamboyant needs like a sleek car, a mansion, studying abroad and such kind of things.

 

  • “Public good” and “merit good”.       

Public goods are products where for any given output consumption additional consumers does not reduce the quantity consumed existing customers e.g. law, parks, street lighting and defence.

Merit goods are those goods and services that the government feels that people will under consume and which ought to be subsidized or provided free at the point of use so that consumption does not depend primarily on the ability to pay for the good or services e.g. education and healthcare.

Public good Merit goods
Normally funded and provided the government Provided both public and private sector
Largely unconstrained supply Limited in supply
Non-rival Rival
Non-excludable Excludable
Non-rejectable Rejectable those unwilling to pay
Marginal cost of supply close to zero Positive marginal cost to supply to extra users

                                       

Equilibrium is a point whereforces of demand and supply are equal.

Stable equilibrium is an equilibrium that is restored if distributed an external force. Most economic models have equilibrium that is stable, reflecting the observation that the real-world adapts to changes and maintains a fair degree of stability.

Unstable equilibrium refers to equilibrium where a slight disturbance evokes further disturbance so that the original position is never restored. In this case, there is a tendency for the object to assume newer and newer positions once there is a departure from the original position e.g. cobweb model 

 

QUESTION 5

November 2020 Question Two B

 Significance of mobility of factors of production

Factor mobility refers to the ability to move factors of production in (labour, capital or land) out of one production process to another. Mobility may involve the movement of factors between firms within an industry; movements of factors across industries within a country and mobility may involve the movement of factors between countries either within industries or across industries.

 

It has the following significance:

  • Mobility of labour helps in increasing efficiency and productivity of workers when workers moved to occupations which they are suited best.
  • Mobility of labour also increases worker’s income when they shift from low-paid to high paid jobs.
  • Labour mobility solves the unemployment problem when workers move to places where they are wanted e.g. when one immigrates from Dubai to look for greener pastures.
  • Mobility of Labour helps in economic development when unemployed labour shifts to public works like dams, roads, canals and factories
  • Mobility may also be deemed to be significant in that workers are occasionally allowed to perform various tasks and are capable of performing them, then they are less likely to experience the monotony often associated with specialisation attributed its accompanying negative effects.
  • Mobility of factors of production enables the benefits of economic growth of a country to be spread evenly throughout. Thus, many industries are located in urban areas primarily because of the urban market and economies of scale. If all industries can be encouraged to locate in rural areas through incentives, then the benefits of industrial development in a particular country can be spread evenly.
  • Mobility enables different factor combinations to be made into use. For instances, more capital and labour can only be used if either of these factors is mobile to facilitate a change in the production techniques. This enables the producers to search for a least cost method of production

 

SAMPLE WORK

Complete copy of ECONOMICS REVISION KIT is available in SOFT copy (Reading using our MASOMO MSINGI PUBLISHER’S APP) and in HARD copy 

Phone: 0728 776 317

Email: info@masomomsingi.co..ke

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