Question: 1

a) Draw the circular-flow diagram and explain. (6 marks)

b) GDP (which we denote as Y) is divided into four components: consumption (C), investment (I), government purchases (G), and net exports (NX): Y = C + I + G +NX. Explain these four components of GDP. (4 marks)

Question: 2

Perfect competition and monopoly are two extremes of market structures.

a) Differentiate between perfect competition and monopoly. (4 marks)

b) With the help of a diagram, explain inefficiency created by a monopoly firm. (6 marks)

Question 3

a) Explain factors which leads to successful collusion between firms in an oligopoly market. (6 marks)

b) Discuss how a kinked demand curve is formed in an oligopoly market structure. (4 marks)