Recent orders
Economics
(a) (i) Define the term cross price elasticity of demand and clearly explain its
value for substitutes and complementary commodities. (5 marks)
(ii) Use data in the table below to compute income elasticity through the
arc elasticity method:
Quantity Income (sh.) Price (sh.)
100 5000 16
120 6000 16
(2 marks)
(b) Discuss any three practical applications of the concept of elasticity of
demand in Management and economic policy decision making.
(6 marks)
(c) (i) The demand for a commodity is five units when the price is sh.1,000
per unit. When price per unit falls to sh.600, the demand rises to six units.
Compute the point and are arc elasticity. (4 marks)
Economic Planning
Kenya is planning to be a newly industrialized country by the year 2020 A.D. What obstacles are likely to impede the achievement of this objective and what steps must be taken to overcome such obstacles? (Total: 20 marks)
Pricing Strategy
The managing Director of Kenya Movie Theatre Ltd. Has hired you as a consultant to advise on the ticket-pricing strategy. As a basis for our recommendations you consider historical ticket-sales date which seems to suggest the following ticket sales elasticities:
Own-price elasticity = -0.5
Refreshment price elasticity =0.12
Nairobi population elasticity = +0.65
Advertising elasticity = +0.70
(a) The managing director is contemplating a moderate increase in ticket prices in order to increases revenue. Explain whether this is a good idea. (5 marks)
(b) The managing director is also contemplating a moderate increase in the advertising budget in order to increase revenue. Is this a good idea? Explain (5 marks)
(c) How would you characterize the relationship between tickets and refreshments?
(5 marks)
(d) If the population of Nairobi increase from 120,000 to 122,400 people in the next one year, what would be the resulting impact on the ticket demand? Assume all other factors are held constant. (5 marks)
(Total: 20 marks)