1.

Economics

a) Definition of Economics as a Discipline (2 marks)

Economics is the social science that studies how individuals, businesses, governments, and societies
allocate their scarce resources to satisfy their unlimited wants, analyzing how incentives affect choices
and decision-making processes.

b) Factors Leading to a Backward Shift in the Supply Curve (10 marks)

1. Increase in Production Costs: If the costs of production rise, such as higher wages, increased
raw material prices, or taxes on production, businesses may reduce their output at every price
level, causing a leftward shift in the supply curve.

2. Technological Regression: A decline in technology or innovation can lead to a decrease in

productivity, resulting in a reduction in the quantity supplied at each price level and a backward
shift in the supply curve.

3. Government Regulations: Stringent regulations imposed by the government, such as production

quotas or environmental standards, can increase the cost of production, leading to a decrease in
supply at every price level.

4. Natural Disasters: Events like floods, earthquakes, or hurricanes can disrupt production
processes, damage infrastructure, and reduce the quantity supplied at each price level, causing
a backward shift in the supply curve.

5. Decrease in Number of Suppliers: A reduction in the number of firms or producers in the

market, due to bankruptcy, exit from the industry, or mergers, can lead to a decrease in supply
at every price level, resulting in a leftward shift in the supply curve.

c) Types of Demand (8 marks)

1. Price Demand (Direct Demand):

o Definition: Refers to the quantity of a good or service demanded at a specific price level.

o Example: If the price of gasoline decreases, the quantity demanded of gasoline

increases, ceteris paribus.

2. Income Demand:

o Definition: Relates to changes in consumer demand due to alterations in income levels

while keeping other factors constant.

o Example: If consumer incomes rise, they may demand more luxury goods, even if the
prices remain constant.

3. Cross Demand (Substitute and Complementary Demand):

o Definition: Represents changes in demand for a particular good as a result of changes in

the price of another related good.
 o Example: If the price of tea increases, the demand for coffee, a substitute, might
increase.

4. Derived Demand:

o Definition: Arises from the demand for another good or service. It is not demanded for
its own sake but as a component or input into the production of another good or
service.

o Example: The demand for labor is derived from the demand for the goods and services
that labor can help produce.

2. Measuring National Income

a) Approaches Used in Measuring National Income (6 marks)

1. Production Approach (Value Added Method): Calculates national income by summing up the
value-added at each stage of production within an economy.

2. Income Approach: Determines national income by adding up all factor incomes earned within
the economy, including wages, rents, interests, and profits.

3. Expenditure Approach (Aggregate Demand): Computes national income by summing up all

expenditures made on final goods and services within an economy, including consumption,
investment, government spending, and net exports.

b) Properties of the Indifference Curve (4 marks)

1. Downward Sloping: Indifference curves slope downward from left to right, indicating that as the
quantity of one good increases, the quantity of the other good decreases to maintain the same
level of satisfaction.

2. Convex to the Origin: Indifference curves are convex to the origin, signifying the diminishing
marginal rate of substitution (MRS) as one moves along the curve.

3. Cannot Intersect: Indifference curves cannot intersect because each curve represents a different
level of utility or satisfaction, and two different levels cannot be equal.

c) Factors Limiting Consumer Sovereignty (10 marks)

1. Income Constraints: Limited income restricts consumers' ability to purchase desired goods and
services, reducing their sovereignty in the market.

2. Limited Information: Inadequate information about available choices, quality, and prices of
goods can hinder consumers from making optimal decisions, limiting their sovereignty.

3. Market Manipulation: Manipulative marketing strategies, such as false advertising or deceptive

packaging, can influence consumer choices, reducing their sovereignty.

4. External Influences: External factors like cultural norms, peer pressure, or societal expectations
can influence consumer preferences, limiting their sovereignty in decision-making.
 5. Government Regulations: Regulations such as tariffs, quotas, or restrictions on certain goods
can limit consumer choices and influence demand, reducing consumer sovereignty.

3. Production Function and Economies of Scale

a) Production Function (2 marks)

Production Function refers to the relationship between the inputs used in production and the resulting
output produced. It shows the maximum amount of output that can be produced from a given set of
inputs.

b) Economies of Scale vs Diseconomies of Scale (10 marks)

 Economies of Scale:

o Definition: Economies of scale refer to the cost advantages that a business can achieve
due to expansion. As production increases, the average cost per unit of production
decreases.

o Example: A manufacturing company increases its production, resulting in lower average

costs of production due to factors such as specialization, bulk purchasing, and efficient
use of resources.

 Diseconomies of Scale:

o Definition: Diseconomies of scale occur when the average cost per unit of production
increases as the scale of production increases.

o Example: A company grows too large, leading to coordination issues, communication

problems, and inefficiencies, resulting in higher average costs per unit.

c) Measures Used to Control Unemployment (8 marks)

1. Fiscal Policy: Governments can use fiscal policy measures such as increased government
spending or tax cuts to stimulate aggregate demand, thereby creating more jobs.

2. Monetary Policy: Central banks can use monetary policy tools like lowering interest rates or
increasing the money supply to encourage investment and consumer spending, which can lead
to job creation.

3. Labor Market Policies: Governments can implement labor market policies such as job training
programs, job search assistance, and employment subsidies to help unemployed individuals find
work.

4. Education and Training: Investment in education and training programs to enhance the skills
and employability of the workforce can help reduce structural unemployment.

5. Infrastructure Investment: Governments can invest in infrastructure projects such as roads,

bridges, and public transportation, which not only creates jobs directly but also stimulates
economic activity and job creation in related industries.

4. Causes of Inflation and Sources of Monopoly Power

a) Causes of Inflation (10 marks)

1. Demand-Pull Inflation: Occurs when aggregate demand exceeds aggregate supply, leading to
upward pressure on prices due to increased consumer spending.

2. Cost-Push Inflation: Arises when production costs, such as wages and raw materials, rise,
leading to businesses passing on these increased costs to consumers through higher prices.

3. Built-in Inflation: Results from the expectation of future inflation, leading to demands for higher
wages and prices, further fueling inflation.

4. Monetary Factors: Expansion of the money supply by the central bank can lead to inflation as
the increased money supply chases the same amount of goods and services, causing prices to
rise.

5. External Shocks: Events such as oil price hikes, natural disasters, or geopolitical instability can
disrupt production and supply chains, causing a rise in prices.

b) Sources of Monopoly Power (10 marks)

1. Control over Scarce Resources: Companies with exclusive access to essential resources or raw
materials can establish monopolies by controlling the supply chain.

2. Patents and Intellectual Property Rights: Ownership of patents, copyrights, and trademarks can
grant a company exclusive rights to produce or sell certain goods or services, creating a
monopoly.

3. Economies of Scale: Large firms can achieve lower average costs of production, making it
difficult for smaller competitors to enter the market, thereby establishing a monopoly.

4. Barriers to Entry: Legal or regulatory barriers, high start-up costs, or technological barriers can
deter potential competitors from entering the market, allowing existing firms to monopolize the
industry.

5. Predatory Pricing: Dominant firms may engage in predatory pricing, deliberately lowering prices
to drive competitors out of the market, enabling them to establish monopoly power.

5. Demand and Supply Analysis

a) Plotting Demand and Supply Curves and Determining Equilibrium Price and Quantity (10 marks)

Equilibrium Price: $30 Equilibrium Quantity: 53 kg

b) Qualities of Money in an Economy (10 marks)

1. Medium of Exchange: Money serves as a widely accepted medium of exchange for buying and
selling goods and services, facilitating transactions in the economy.

2. Unit of Account: Money provides a common unit of measurement for expressing the value of
goods and services, enabling individuals to compare prices and make informed decisions.
 3. Store of Value: Money acts as a store of value, allowing individuals to save purchasing power
over time by holding onto money to be used for future purchases.

4. Standard of Deferred Payment: Money allows for the deferral of payments and debts over time,
providing a standard measure for future financial obligations.

5. Fungibility: Money is interchangeable and divisible, allowing it to be broken down into smaller
denominations and used for various transactions, enhancing its liquidity and usability.

i) Indifference Curve vs. Budget Line

1. Indifference Curve:

o Definition: An indifference curve represents various combinations of two goods that

provide the same level of satisfaction or utility to a consumer.

o Shape: Indifference curves are typically convex to the origin, indicating diminishing
marginal rates of substitution between the two goods.

o Utility: Points on higher indifference curves represent greater utility than points on
lower curves.

o Slope: The slope of the indifference curve indicates the rate at which the consumer is
willing to substitute one good for another while maintaining the same level of
satisfaction.

2. Budget Line:

o Definition: A budget line illustrates the different combinations of two goods that a
consumer can afford given a specific budget and the prices of the goods.

o Shape: The budget line is usually straight, representing constant prices for the two
goods.

o Constraint: The budget line shows the constraint faced by the consumer due to limited
income.

o Slope: The slope of the budget line indicates the relative prices of the two goods; it is
the negative ratio of the prices of the two goods.

ii) Isoquant vs. Isocost Line

1. Isoquant:

o Definition: An isoquant represents various combinations of two inputs (e.g., labor and
capital) that can produce the same level of output.

o Shape: Isoquants are typically convex to the origin, indicating diminishing marginal rate
of technical substitution (MRTS) between the inputs.

o Utility: Points on higher isoquants represent greater output levels than points on lower
isoquants.
 o Slope: The slope of an isoquant indicates the rate at which one input can be substituted
for another while keeping output constant.

2. Isocost Line:

o Definition: An isocost line shows the different combinations of two inputs that can be
purchased at a given total cost.

o Shape: The isocost line is usually straight, representing constant total costs.

o Constraint: The isocost line shows the budget constraint faced by the firm due to limited
expenditure on inputs.

o Slope: The slope of the isocost line represents the relative prices of the two inputs; it is
the negative ratio of the prices of the inputs.

b) Advantages of International Trade to an Economy

1. Increased Efficiency: International trade allows countries to specialize in the production of

goods and services in which they have a comparative advantage. This specialization leads to
increased efficiency and higher productivity.

2. Expanded Market Access: By engaging in international trade, countries can access larger
markets beyond their domestic borders, allowing for increased sales and revenue for domestic
producers.

3. Consumer Benefits: International trade offers consumers access to a wider variety of goods and
services at competitive prices. This increases consumer choice and enhances the standard of
living.

4. Economic Growth: International trade can stimulate economic growth by promoting innovation,
technological advancement, and the efficient allocation of resources. It provides opportunities
for firms to scale up production and expand into new markets.

5. Optimal Resource Allocation: International trade facilitates the optimal allocation of resources
by allowing countries to specialize in the production of goods and services in which they have a
comparative advantage. This leads to a more efficient use of resources and higher overall
welfare.

6. Foreign Exchange Earnings: Exporting goods and services generates foreign exchange earnings
for a country, which can be used to finance imports, repay debts, or invest in domestic
development projects. This contributes to the stability and growth of the economy.

3.5

a) Definition of Economics: Economics is the social science that studies how individuals, businesses,
governments, and nations make choices about allocating scarce resources to satisfy their unlimited
wants.

b) Causes of Inflation in Developing Countries:

 1. Demand-Pull Inflation:

o Demand-pull inflation occurs when aggregate demand in the economy exceeds

aggregate supply, leading to upward pressure on prices. In developing countries, factors
such as rapid urbanization, increased consumer spending, and government spending can
contribute to excessive demand, leading to inflationary pressures.

2. Cost-Push Inflation:

o Cost-push inflation occurs when the cost of production rises, leading to an increase in
prices. In developing countries, factors such as rising wages, high energy costs, and
supply chain disruptions can push up production costs, resulting in inflation.

3. Monetary Factors:

o Excessive money supply growth can lead to inflation. In developing countries, central
banks may resort to printing money to finance budget deficits or to stimulate economic
growth. This increase in the money supply without a corresponding increase in goods
and services can fuel inflation.

4. Exchange Rate Depreciation:

o Depreciation of the domestic currency can lead to higher import prices, which in turn
can lead to inflation. Developing countries often experience exchange rate volatility due
to factors such as speculative capital flows, trade imbalances, and external debt, which
can contribute to inflationary pressures.

5. Supply-Side Shocks:

o Supply-side shocks, such as natural disasters, wars, or political instability, can disrupt
production and distribution channels, leading to a decrease in aggregate supply and
pushing prices higher. In developing countries, vulnerabilities such as poor
infrastructure, limited access to technology, and dependence on agricultural production
can exacerbate the impact of supply-side shocks on inflation.

c) Types of Demand:

1. Price Demand:

o Price demand refers to the quantity of a good or service that consumers are willing and
able to purchase at a given price level. It shows the inverse relationship between price
and quantity demanded, assuming other factors remain constant.

2. Income Demand:

o Income demand refers to the quantity of a good or service that consumers are willing
and able to purchase at various income levels. As income increases, the demand for
certain goods and services may rise, leading to a shift in demand curves.

3. Cross Demand:
 o Cross demand, also known as cross-price elasticity of demand, refers to the
responsiveness of the quantity demanded of one good to a change in the price of
another good. It measures the degree to which the demand for one good is affected by
the price change of another good.

4. Composite Demand:

o Composite demand occurs when a good or service is demanded for multiple uses. For
example, crude oil can be demanded for the production of gasoline, diesel, plastics, and
other products. Changes in the demand for one use of the product can affect its overall
demand.

5.

a) Consumer Equilibrium in Relation to Ordinal Approach to Utility:

In the ordinal approach to utility, consumer equilibrium is achieved when the consumer maximizes
utility subject to the budget constraint. Here's how it works:

 The consumer is in equilibrium when the marginal utility per dollar spent on each good is equal.

 The consumer allocates income in such a way that the last dollar spent on each good yields the
same level of satisfaction.

 Mathematically, consumer equilibrium is reached when the consumer's budget is allocated in a

way that the ratio of the marginal utility of each good to its price is the same for all goods.

b) Functions of Central Bank:

1. Monetary Policy Formulation:

o Central banks formulate and implement monetary policies to achieve macroeconomic

objectives such as price stability, full employment, and economic growth. They control
the money supply, interest rates, and credit conditions to influence economic activity.

2. Banker to the Government:

o Central banks act as bankers to the government, managing government accounts,

conducting government borrowing, and facilitating debt management activities. They
also advise the government on financial matters.

3. Regulator of the Banking System:

o Central banks regulate and supervise commercial banks and other financial institutions
to ensure the stability and soundness of the banking system. They set prudential
regulations, monitor compliance, and intervene when necessary to maintain financial
stability.

4. Lender of Last Resort:

 o Central banks serve as lenders of last resort, providing emergency liquidity assistance to
banks and financial institutions facing temporary liquidity shortages. This function helps
prevent systemic financial crises and maintains confidence in the financial system.

5. Foreign Exchange Management:

o Central banks manage foreign exchange reserves and conduct foreign exchange
operations to stabilize the domestic currency, intervene in foreign exchange markets to
influence exchange rates, and maintain external balance and competitiveness.

6.

a) Importance of Production in Economic Development:

1. Creation of Wealth:

o Production leads to the creation of goods and services, which are essential for economic
growth and development. Increased production results in higher national income and
improved standards of living.

2. Employment Generation:

o Production activities create employment opportunities for the labor force, reducing
unemployment and poverty levels. A growing production sector absorbs surplus labor
from other sectors, contributing to overall economic development.

3. Technological Innovation:

o Production processes drive technological innovation and industrial advancement.

Investment in production facilities and research and development (R&D) activities leads
to the adoption of new technologies, processes, and techniques, enhancing productivity
and competitiveness.

4. Infrastructure Development:

o Production activities stimulate infrastructure development, including transportation,

communication, energy, and utilities. Infrastructure investments support the efficient
movement of goods and services, reducing production costs and promoting economic
integration.

5. Export Growth:

o Production expansion allows countries to increase their export capacity, leading to

higher foreign exchange earnings, trade surpluses, and improved balance of payments.
Export-oriented production strategies contribute to economic diversification and global
market integration.

b) Importance of National Income Statistics in an Economy:

1. Measurement of Economic Performance:

 o National income statistics, such as Gross Domestic Product (GDP), provide crucial
information about the overall economic performance of a country. They measure the
value of goods and services produced within the country's borders over a specific
period, reflecting the level of economic activity and growth.

2. Policy Formulation and Evaluation:

o National income statistics serve as vital tools for policymakers to formulate, implement,
and evaluate economic policies. Governments use GDP data to assess the effectiveness
of fiscal and monetary policies, identify economic trends, and make informed policy
decisions.

3. Resource Allocation:

o National income statistics help in the efficient allocation of resources by providing

insights into sectoral contributions to the economy. They identify key sectors driving
economic growth, investment opportunities, and areas requiring policy intervention or
support.

4. Standard of Living Assessment:

o National income statistics are used to assess the standard of living and welfare of the
population. Per capita income derived from GDP figures indicates the average income
level per person, allowing comparisons of living standards over time and across different
countries.

5. International Comparisons:

o National income statistics facilitate international comparisons of economic performance

and living standards among countries. GDP data enables analysts, investors, and
policymakers to assess a country's economic competitiveness, development progress,
and global market positioning.

c) Advantages of a Planned Economy:

1. Resource Allocation Efficiency:

o In a planned economy, central planning authorities allocate resources according to

predetermined goals and priorities. This can result in more efficient resource allocation,
reducing waste and inefficiency compared to market-driven economies.

2. Stability and Predictability:

o Planned economies often offer greater stability and predictability in economic activities.
Long-term plans and targets provide businesses and individuals with a clear direction,
reducing uncertainty and volatility in the economy.

3. Social Welfare:

o A planned economy can prioritize social welfare objectives, such as reducing income
inequality, providing universal access to essential services, and ensuring basic needs are
 met for all citizens. Central planning allows for the implementation of redistributive
policies to address social issues.

4. Strategic Development:

o Central planning enables governments to pursue strategic development objectives, such

as industrialization, infrastructure development, and technological advancement. Long-
term planning allows for coordinated investments in key sectors critical for economic
growth and modernization.

5. Control over Market Failures:

o A planned economy provides the government with the tools to address market failures,
such as monopolies, externalities, and public goods provision. Central planning can
intervene to correct market distortions and ensure optimal outcomes for society as a
whole.

6.

a) Advantages of International Trade:

1. Enhanced Efficiency and Productivity:

o International trade allows countries to specialize in the production of goods and services in
which they have a comparative advantage. This specialization leads to increased efficiency,
productivity, and economic growth.

2. Increased Consumer Choice:

o International trade offers consumers access to a wider variety of goods and services from
different countries. This increases consumer choice, promotes competition, and improves
the quality and diversity of available products.

3. Economic Growth and Development:

o International trade stimulates economic growth and development by expanding markets,

attracting foreign investment, and facilitating technology transfer and innovation. Trade-
driven growth leads to higher incomes, employment opportunities, and poverty reduction.

4. Optimal Resource Allocation:

o International trade allows for the optimal allocation of resources on a global scale.
Countries can specialize in the production of goods and services where they have a
comparative advantage, leading to efficient resource utilization and higher overall welfare.

5. Access to Resources and Inputs:

o International trade provides access to scarce resources, raw materials, and intermediate
inputs that may not be available domestically. This enables firms to lower

o To find the equilibrium price and quantity, we need to set the quantity demanded (Qd)
equal to the quantity supplied (Qs) and solve for the equilibrium price (p).
o

o Given:

o Demand function: Qd = 80 - 4p

o Supply function: Qs = -20 + 8p

o Setting Qd equal to Qs:

o Qd = QsQd=Qs

o 80 - 4p = -20 + 8p80−4p=−20+8p

o Now, solve for pp:

o 80 - 4p = -20 + 8p80−4p=−20+8p

o 80 + 20 = 8p + 4p80+20=8p+4p

o 100 = 12p100=12p

o p = \frac{100}{12}p=

o 12

o 100

o p = 8.33p=8.33

o Now, we can substitute the value of pp back into either the demand or supply function to
find the equilibrium quantity. Let's use the demand function:

o Qd = 80 - 4(8.33)Qd=80−4(8.33)

o Qd = 80 - 33.32Qd=80−33.32

o Qd = 46.68Qd=46.68

o
o Therefore, the equilibrium price (p) is approximately 8.338.33 and the equilibrium quantity
(Q) is approximately 46.6846.68.

o To maintain the accuracy of the calculation, it's advisable to round off the values
appropriately. So, the equilibrium price is approximately 8.338.33 and the equilibrium
quantity is approximately 46.6846.68.

Characteristics of Monopoly Market Structure:

i. Single Seller: In a monopoly, there is only one seller who controls the entire market
supply of a particular product or service. This seller has substantial control over the market
price.

ii. Unique Product: A monopolist produces a unique product that has no close substitutes.
There are no competing products that are identical or very similar to the monopolist's
product.

iii. Barriers to Entry: Monopolies are characterized by significant barriers to entry, which
prevent other firms from entering the market and competing with the monopolist. Barriers
may include patents, exclusive access to resources, high startup costs, or government
regulations.

iv. Price Maker: The monopolist has the power to set the price of the product. Since there
are no close substitutes, the monopolist can choose the price that maximizes profit,
subject to the demand curve it faces.

v. High Market Power: Monopolies possess significant market power, allowing them to
influence market conditions and make decisions independently of competitive forces. They
can affect prices, output levels, and other market variables.

vi. Profit Maximization: The primary goal of a monopoly is to maximize profit. Unlike
competitive firms, monopolies do not operate at the lowest possible average cost in the
long run but choose the output level where marginal revenue equals marginal cost to
maximize profit.
Concept of Cost-Push Inflation:

Cost-push inflation occurs when the costs of production rise, leading to an increase in the
overall price level in the economy. This type of inflation is often caused by factors such as
increases in the prices of raw materials, labor costs, or other production inputs. As
production costs increase, producers must raise prices to maintain their profit margins,
leading to a general increase in the price level across the economy.

In the diagram above:

The initial equilibrium occurs at the intersection of AD (Aggregate Demand) and SRAS
(Short-Run Aggregate Supply) curves, where the price level is P_0P

and the output level is Y_0Y

Due to an increase in production costs, the short-run aggregate supply curve shifts to the
left from SRAS to SRAS', leading to a new equilibrium point at P_1P

and Y_1Y

As a result, the price level rises from P_0P

0
 to P_1P

, while the output level decreases from Y_0Y

to Y_1Y

This demonstrates cost-push inflation, where increased production costs lead to a higher
price level and reduced output in the short run.

Advantages of Free Market System:

i. Efficiency: Free markets allocate resources efficiently by allowing prices to adjust based
on supply and demand. Resources are directed to where they are most valued, leading to
optimal resource allocation.

ii. Innovation and Entrepreneurship: Free markets encourage innovation and

entrepreneurship by providing incentives for individuals and businesses to develop new
products, services, and technologies to meet consumer needs and preferences.

iii. Consumer Choice: In a free market, consumers have a wide range of choices and
options available to them. Competition among firms leads to a greater variety of goods and
services, allowing consumers to choose products that best satisfy their preferences.

iv. Flexibility: Free markets offer flexibility in responding to changes in consumer demand
and preferences, as well as changes in production technology. Prices adjust quickly to
changes in supply and demand, facilitating efficient resource allocation.

v. Economic Growth: Free markets promote economic growth by fostering innovation,

investment, and productivity improvements. As businesses compete to meet consumer
demands, they invest in new technologies and processes, leading to increased productivity
and overall economic growth.

vi. Minimal Government Intervention: Free markets operate with minimal government
intervention, which reduces bureaucratic inefficiencies and allows markets to function
more freely. This promotes individual freedom and reduces the burden of government
regulations on businesses and consumers.

Assumptions of Ordinal Approach to Utility:

i. Ordinal Preference: Individuals can rank different bundles of goods and services in order
of preference. While the absolute level of utility cannot be measured, individuals can
determine whether one bundle is preferred to another.

ii. Transitivity: Preferences are transitive, meaning if an individual prefers bundle A to

bundle B and bundle B to bundle C, then they also prefer bundle A to bundle C.

iii. Completeness: Individuals have complete and consistent preferences, meaning they can
compare and rank all possible combinations of goods and services.

iv. Diminishing Marginal Rate of Substitution: As an individual consumes more of one good
and less of another, the marginal rate of substitution between the two goods decreases. In
other words, the individual is willing to give up fewer units of one good to obtain an
additional unit of the other good.

v. Utility Maximization: Consumers aim to maximize their utility subject to their budget
constraint. They allocate their income to different goods and services in such a way that
the marginal utility per dollar spent is equal across all goods.

Factors Influencing Labour Mobility:

i. Geographical Mobility: The ease with which workers can move geographically to seek
employment opportunities greatly influences labour mobility. Factors such as housing
affordability, transportation infrastructure, and family considerations affect workers' ability
to relocate for work.

ii. Occupational Mobility: Occupational mobility refers to the ability of workers to switch
between different occupations or industries. It is influenced by factors such as transferable
skills, education and training opportunities, and labour market demand for specific skills.

iii. Labour Market Flexibility: The degree of flexibility in the labour market, including
factors such as employment protection legislation, wage rigidity, and labour market
regulations, affects workers' willingness and ability to change jobs or industries.

iv. Education and Training: Access to education and training programs plays a crucial role in
labour mobility. Workers with higher levels of education and relevant skills are often more
adaptable to changing labour market conditions and have better prospects for mobility.

v. Job Information and Matching: The availability and accessibility of job information, as
well as efficient job matching mechanisms, influence labour mobility. Workers need access
to information about job vacancies, skills requirements, and career development
opportunities to make informed decisions about job changes.

Market Equilibrium:

a) Computing Equilibrium Price and Quantity:

To find the equilibrium price and quantity, we need to equate the industry demand and
supply functions:

Q_d = Q_sQ

=Q

s
70 - 2P + 200 - 4P + 20 - 0.5P + 240 - 4P = 40 +
3.5P70−2P+200−4P+20−0.5P+240−4P=40+3.5P

530 - 10.5P = 40 + 3.5P530−10.5P=40+3.5P

10.5P + 3.5P = 530 - 4010.5P+3.5P=530−40

14P = 49014P=490

P = \frac{490}{14}P=

14

490

P = 35P=35

Substitute P = 35P=35 into any of the demand or supply functions to find the equilibrium
quantity:

Q_d = 70 - 2 \times 35 = 70 - 70 = 0Q

=70−2×35=70−70=0

Q_s = 40 + 3.5 \times 35 = 40 + 122.5 = 162.5Q

=40+3.5×35=40+122.5=162.5

Therefore, the equilibrium price (PP) is 35 and the equilibrium quantity is 162.5.

Individual demand quantities:

Individual A: Q_A = 70 - 2 \times 35 = 0Q

=70−2×35=0

Individual B: Q_B = 200 - 4 \times 35 = 60Q

=200−4×35=60

Individual C: Q_C = 20 - 0.5 \times 35 = 2.5Q

=20−0.5×35=2.5

Individual D: Q_D = 240 - 4 \times 35 = 100Q

=240−4×35=100

b) Excess Supply:

Excess supply = Q_s - Q_dQ

−Q

Excess supply = 162.5 - 0162.5−0

Excess supply = 162.5162.5

c) Excess Demand:

Excess demand = Q_d - Q_sQ

d

−Q

Excess demand = 0 - 162.50−162.5

Excess demand = -162.5−162.5

d) Functions of Commercial Banks:

i. Deposit and Lending: Commercial banks accept deposits from customers and provide
loans and credit facilities to individuals and businesses.

ii. Payment Services: Banks facilitate various payment services such as issuing checks,
electronic funds transfers, and debit/credit card transactions.

iii. Investment Banking: Commercial banks provide investment banking services such as
underwriting securities, facilitating mergers and acquisitions, and offering advisory services
to corporate clients.

iv. Financial Intermediation: Banks act as financial intermediaries, channeling funds from
savers to borrowers by providing a link between those who have surplus funds and those
who need funds.

v. Foreign Exchange Services: Banks offer foreign exchange services, including currency
exchange, international wire transfers, and hedging against foreign exchange risk.
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