INTRODUTION TO AGRICULTURAL ECONOMICS

INSTRUCTIONS TO CANDIDATES

Answer Question ONE and any other THREE questions 

QUESTION 1

1. a) Define agricultural economics and elaborate four main areas that constitute the scope of agricultural economics (4 marks)
2. b) Discuss five unique characteristics of agricultural products. (3 marks)
3. Given hypothetical data set as follows

Inputs (X)	0	1	2	3	4	5	6	7	8	9
Output (Q)	0	50	110	160	200	230	250	260	260	250

Compute

1. i) Average physical product (APP) (2 marks)
2. ii) Marginal physical product (MPP) (2 marks)

iii) Plot on a paper APP and MPP against input (X) and explain the resultant trends                                                                (3 marks)

1. The general form of Cobb-Douglas production function is given as

       Q = AL^a1K^a2M^a3

1. Explain the variables and parameters in the model (2 marks)
2. Using the parameters in the model explain constant returns, increasing returns and decreasing returns to scale (3 marks)

• Outline four characteristics of the Cobb-  Douglas production function                                                                                       (2 marks)

1. The equilibrium market basket (budget constraints) and optimal combination of inputs are frequently encountered concepts in agricultural economics. Discuss the difference and similarities in the two concepts.                   (4 marks)

QUESTION 2

Assume that a perfectly competitive firm has fixed costs of kshs 400 and variable costs as shown

Total product	0	1	2	3	4	5	6	7	8
TVC	0	550	750	900	1100	1350	1700	2200	2900

Compute

1. Total costs                                                                                (2 marks)
2. Average fixed costs (2 marks)

• Average variable costs (2 marks)

1. Average total costs (2 marks)
2. Marginal costs ( 2 marks)
3. Plot the results on a paper and explain the observed relationships  (5 marks)

 

QUESTION 3

1. a) Define the following terms
2. i) Demand for an agricultural product (1 mark)
3. ii) Supply of an agricultural product (1 mark)
4. b) Given the following data set

Price (kshs)	1000	800	600	200	0
Quantity demanded (Qd)	500	1000	1500	2000	2500
Quantity supplied (Qs)	2500	2000	1500	1000	500

1. Plot the data on a paper                                                                 (3 marks)
2. indicate the equilibrium price and quantity                           (2 marks)

• What would be the effect if the minimum price is fixed at kshs 200                                                                                                                    (3 marks)

1. What would be the effect if the minimum price is fixed at kshs 800                                                                                                                                (3 marks)
2. What would happen if tastes for the product changed      (2 marks )

 

QUESTION 4

1. A demand function is given as Q =30 =2P,

Where:         Q is total sales of wheat in kgs

P is price in kshs/kg

1. Write the expression for total revenue (TR) (2 marks)
2. Determine the marginal revenue (MR) (2 marks)

• Determine the profit maximizing quantity (Q) (2 marks)

1. Compute the maximum Total revenue (TR)                   (2 marks)
2. Explain five factors which affect the demand for and five factors which affect the supply of agricultural products in the market place (5 marks)
3. What is price elasticity of demand? (2 marks)

 

QUESTION 5

1. Discuss the role of agriculture in rural development.            (7 Marks)
2. Explain the prospects for agriculture in national development. (8marks)