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TECHNICIAN LEVEL
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T4: BUSINESS ECONOMICS
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MONDAY 14 DECEMBER 2015
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TOTAL MARKS 100; TIME ALLOWED: THREE (3) HOURS
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INSTRUCTIONS TO CANDIDATES
1.
You have fifteen (15) minutes reading time. Use it to study the examination paper
carefully so that you understand what to do in each question. You will be told when
to start writing.
2.
Section B:
3.
Enter your student number and your National Registration Card number on the front
of the answer booklet. Your name must NOT appear anywhere on your answer
booklet.
4.
5.
6.
The marks shown against the requirement(s) for each question should be taken as
an indication of the expected length and depth of the answer.
7.
8.
9.
Graph paper (if required) is provided at the end of the answer booklet.
Explain any four (4) factors that affect elasticity of demand for a good.
(8 marks)
(b)
Outline any four (4) problems associated with state ownership of the means of
production in an economy like Zambia
(8 marks)
(c)
State any three (3) advantages and any three (3) disadvantages of a limited
company as a legal form of a business organisation.
(6 marks)
(d)
(3 marks)
[Total: 25 Marks]
QUESTION TWO
(a)
(10 marks)
(b)
(c)
Explain whether a monopolistic firm can make above normal profits or economic
profits in the long run?
(6 marks)
(b)
Under what situation will a monopoly be of better service to society than a perfectly
competitive firm? Give two situations.
(4 marks)
[Total: 25 Marks]
QUESTION THREE
(a)
A manufacturing firm in Lusaka has the following price and cost structure:
Number of Units (Output)
Price (K)
0
1
2
3
4
5
6
7
120
120
120
120
120
120
120
120
80
100
140
210
280
400
600
840
(i)
Fixed cost
Marginal cost
(1 mark)
(3 marks)
2
3.
4.
5.
Total revenue
Marginal revenue
Profit
(3 marks)
(1 mark)
(3 marks)
(ii)
(4 marks)
(iii)
How many units should the firm sell in order to maximise profits and what is
the maximum achievable profit?
(4 marks)
(b)
(2 marks)
(c)
(4 marks)
[Total: 25 Marks]
SECTION B: MACRO ECONOMICS
Answer any TWO (2) questions from this section
QUESTION FOUR
(a)
(b)
(c)
The following figures (in Thousands of Kwacha) represent national income accounts
for country X.
Consumer Expenditure
Taxes on Expenditure
Import and property income paid abroad
Public authorities expenditure
Exports and property income from abroad
Capital consumption
Gross domestic fixed capital formation
Value of physical increase in stocks
Subsidies
(3 marks)
K 000
140
40
60
40
40
50
40
30
30
Required:
Compute the following:
(i)
(4 marks)
(ii)
(4 marks)
(iii)
(4 marks)
(d)
(4 marks)
[Total: 25 marks]
QUESTION FIVE
(a)
The Kwacha has for the first time been not stable. Holding other things constant,
explain the effects of a strong kwacha on:
(i)
(ii)
(5 marks)
(5 marks)
(i)
(ii)
(b)
(c)
(6 marks)
QUESTION SIX
(a)
(2 marks)
(b)
(5 marks)
(c)
Distinguish between managed flexibility and freely floating exchange rate systems.
(5 marks)
(d)
(e)
(8 marks)
[Total: 25 marks]
QUESTION SEVEN
(a)
The following table gives data for two countries namely China and Nigeria with
regard to the production of two products clothing and oil.
Country
Clothing (Tonnes)
China
Nigeria
500
250
(i)
Oil (Barrels)
50
20
(2 marks)
(ii)
(iii)
(b)
According to the data in the above table, in which product does each country
(that is, China and Nigeria) have an absolute advantage. Justify your answer.
(2 marks)
What is meant by comparative advantage?
(2 marks)
(iv)
According to the data in the table given above, in which product does each
country have a comparative advantage? Show your calculations. (4 marks)
(v)
(vi)
(6 marks)
[Total: 25 Marks]
END OF PAPER
SOLUTION THREE
a) i)
Q
0
1
2
3
4
5
6
7
P
120
120
120
120
120
120
120
120
TC
80
100
140
210
280
400
600
840
FC
80
80
80
80
80
80
80
80
MC
20
40
70
70
120
200
240
TR
0
120
240
360
480
600
720
840
MR
120
120
120
120
120
120
120
PROFIT(LOSS)
(80)
20
100
150
200
200
120
0
iii. Externalities: GNP takes no account of externalities. Some important costs and
benefits never enter the GNP calculations, such as environmental pollution.
iv. Non-market products and services: products which are produced and consumed by
the producers i.e., not sold on the market are not included in the calculation of
GNP. Thus payment in kind is also left out(barter).
c.
K 000
Consumer Expenditure
140
Public authorities expenditure
40
Gross domestic fixed capital formation
40
Value of physical increase in stocks
30
GROSS DOMESTIC EXPENDITURE AT MARKET PRICES
250
Net property income paid abroad
(20)
Taxes on Expenditure
(40)
Plus: Subsidies
30
GROSS NATIONAL PRODUCT AT FACTORS COSTS
220
Less: Capital consumption
50
NET NATIONAL INCOME
170
Therefore
i.
ii.
iii.
expensive in terms of their home currencies. This will reduce demand for
copper.
b)
(i)
(ii) The consumer price index (CPI) is an index which reflects the cost of a
representative basket of a consumer goods and services.
The basket consists of basic goods and services consumed in households and
each of them is assigned a weight according to the average spending on the
item.
The CPI is estimated by comparing the cost of one basket to that of the next
basket. It is calculated for each month and the annual figure is an average of
the 12 monthly indexes for a year.
To compute the inflation rate from year to year, the change in annual CPI
between the respective years is calculated as a percentage.
c) The following are the functions of the Bank of Zambia as provided by the two Acts of
Parliament:
Banker to the banking system
Banker to the government
Implementation of monetary policy
Fiscal agent of the government
Prudential supervision of banking and financial system
Foreign exchange supervision
SOLUTION SIX
a) Financial intermediation is the process through which funds are channelled from
surplus units to deficit units.
b) Examples of financial intermediaries include commercial banks, building Societies,
Pension Funds, Insurance Companies, Unit Trusts, Investment trusts.
c) Managed flexibility: Under this system the government will intervene in the
market to buy or sell currently in order to achieve an exchange rate target ; free
floating or flexibility is not allowed to avoid non achievement of the exchange rate
target.
10
A freely floating rate system, on the other hand, is a system where the exchange
rate is determined by the market forces of demand of and supply for foreign
currencies, without any systematic government intervention.
d) The functions of taxation are (any three):
To raise revenue for the government to finance public and merit goods.
To redistribute income and wealth
To protect domestic industries from foreign competition
To put into effect automatic stabilisers in national income.
e) Injections are those activities which increase the size of the circular flow of income.
Examples are exports, investment and government expenditure. Withdrawals are
those activities which reduce the size of the circular flow of income. Examples are
imports, savings and taxation.
SOLUTION SEVEN
a)
i)
Absolute advantage occurs when a country can produce a good using fewer
resources than its trading partner.
ii)
In the above table, China has an absolute advantage in producing both goods.
iii)
iv)
v)
vi)
END OF SOLUTIONS
12