THE UNITED REPUBLIC OF TANZANIA NATIONAL EXAMINATIONS COUNCIL

ADVANCED CERTIFICATE OF SECONDARY EDUCATION EXAMINATION

151/1  ECONOMICS 1

ECONOMIC THEORY

(For Both School and Private Candidates)

Time: 2:30 Hours Monday, 15^th February 2010 p.m.

INSTRUCTIONS

1. This paper consists of ten (10) questions in sections A and B.

2. Answer five (5) questions choosing at least two (2) questions from each section.

3. Each question carries twenty (20) marks.

4. Credit will be awarded for brief and well argued answers.

5. Cellular phones are not allowed in the examination room.

6. Write your Examination Number on every page of your answer booklet(s).

SECTION A

1. (a) Can a society satisfy all its wants? Justify your answer.

(b) ‘Where there is scarcity; opportunity cost and choice is inevitable.’ Discuss.

2. Explain the importance and limitation of price mechanism.

3. Critically discuss the Ricardian theory of Rent.

4. Briefly explain the following statements:

(a) Demand for food in general is inelastic but demand for a specific food is elastic.

(b) The supply of land for the economy as a whole is fixed but the supply of land for a particular use is not fixed.

(c) In real sense all commodities are in competitive demand.

(d) Demand for any factor of production is said to be derived.

5. With the help of a well labelled graphs show the nature of cross elasticity for

(a) Substitute goods (b) Complementary goods (c) Independent goods.

SECTION B

6. (a) Explain the concept of monopolistic competition.

(b) Describe the necessary conditions for profit maximization behaviour of firms under perfect competition.

7. Use a diagram and laws of returns to distinguish economies of scale from diseconomies of scale.

8. Consider the table below which shows the price and costs faced by a profit-maximizing firm operating under conditions of perfect competition.

Find the profit maximizing quantity.

Note: Q = Quantity.

9. (a) Explain the types of mobility of labour.

(b) State the merits of mobility of labour.

10. ‘Money is what makes money.’ Explain.