KCSE Business Studies Topical Questions and Answers

With the aid of a diagram, explain the effect of an increase in the supply of a commodity while its demand remains constant.

21/12/2020

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With the aid of a diagram, explain the effect of an increase in the supply of a commodity while its demand remains constant.

Other factors remaining the same, the price of a commodity will fall from P0 to P1 as the quantity supplied changes from Q0 to Q1.
This creates a new equilibrium E1 from E0 as supply curve shifts to the right from S0S0 to S1S1.
The increase in supply causes excess supply/surplus.
This lowers price to the new equilibrium price oP1 and equilibrium quantity oQ1.

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On 1st January 2011 , Jumo Traders had shs 22,500 in cash and shs 250,000 at bank.During the month, the following transactions took place:

21/12/2020

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On 1st January 2011 , Jumo Traders had shs 22,500 in cash and shs 250,000 at bank.During the month, the following transactions took place:

Prepare a duly balanced three column cash book. (10 marks)

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Explain five benefits that may be realized by a country as a result of government policy to relocate industries to rural areas.

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Explain five benefits that may be realized by a country as a result of government policy to relocate industries to rural areas.

Benefits that may he realized by a country as a result of government policy to relocate industries to rural areas include:

Increased availability of variety of goods and services as a result of new businesses in the area.
Availability of auxiliary services - citizens would enjoy more and better auxiliary services like transport.
Increased job opportunities - there will be more jobs available that would reduce unemployment.
Increased utilisation of locally available resources - locally available factors of production will be used and the citizens would earn rewards associated with them.
Improved standard of living as development of the rural areas increases the quality and variety of goods and services.
Reduced congestion in towns - this would benefit the few citizens remaining in the city.
Balanced economic development as economic activities are spread throughout the country.
Transfer of technology to rural areas which leads to production of better quality goods/services.
Creation of market for goods/services produced in rural areas.

Explain five benefits that may be realized by a country as a result of government policy to relocate industries to rural areas.

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State four basic features of a market.

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State four basic features of a market.

Basic features of a market include:

Availability of buyers.
Availability of goods/services.
A platform for conducting transactions.
Availability of sellers.
Availability of medium of exchange.
Freedom to buy and sell.

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Highlight four factors that may cause the supply curve to shift to the right.

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Highlight four factors that may cause the supply curve to shift to the right.

Factors that may cause the supply curve to shift to the right include:

Reduced cost of production.
Bumper harvest.
Increase in the price of complementary goods.
Government incentives to producers e.g. subsidy.
Entry of new firms into the market.
Reduced price of substitute goods.
Improved production methods.
Reduced incidences of industrial strikes.
Availability of the factors of production.
Future expectation of a fall in price.

Highlight four factors that may cause the supply curve to shift to the right.

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Outline four factors that may make a producer to by-pass the wholesaler when distributing goods.

21/12/2020

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Outline four factors that may make a producer to by-pass the wholesaler when distributing goods.

Factors that may make a producer to by pass the wholesaler when distributing goods include:

Having own retail outlet.
Dealing in perishable goods like bread which require shorter channels.
Dealing in technical goods which require elaborate after sales services.
Consumers and retailers buying in large qualities.
Need to keep price of goods low.
Limited geographical spread of the market.
Government policy.
When the production is in small quantity.
Where the producer has enough storage facilities.
When goods are produced on order.

Outline four factors that may make a producer to by-pass the wholesaler when distributing goods.

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Below are some entries in the cash book of Romano Traders for the month of July 2010.

21/12/2020

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Below are some entries in the cash book of Romano Traders for the month of July 2010.

State the meaning of the following entries:
(a) July 1, 2010 Balance b/d, bank column, shs 100,000
(b) July 6, 2010 cash shs 20,000 and bank shs 20,000
(c) July 28, 2010 debtors shs 20,000
(d) July 31, 2010 Balance c/d shs 10,000

Meaning of the entries:

Bank overdraft.
Contra entry.
Cash received from debtor.
Closing cash in hand.

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Highlight four circumstances under which the capital of a business may change.

21/12/2020

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Highlight four circumstances under which the capital of a business may change.

Circumstances under which the capital of a business may change are:

When the business makes profit.
When the business makes losses.
When the owner draws cash/goods for personal use/drawings.
When the owner makes additional investment into the business/additional capital.

Highlight four circumstances under which the capital of a business may change.

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State the type of unemployment relating to each of the following descriptions:

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State the type of unemployment relating to each of the following descriptions:

(a) Caused by alternating trading patterns occurring at similar times.
(b) Arises where workers have more skills and higher qualifications than the job requirements.
(c) Arises out of a mismatch between the skills possessed by potential employees and the location of the jobs available.
(d) Arises when people are unwilling to take up jobs due to low pay.

Cyclical unemployment.
Disguised/hidden unemployment.
Structural unemployment/technological.
Voluntary unemployment/real wage.

State the type of unemployment relating to each of the following descriptions:

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The following information relates to Karibu traders for the year ended 31 December 2008.

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The following information relates to Karibu traders for the year ended 31 December 2008.

Determine owner’s capital using the information given above. (4 marks)

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The following balances were extracted from the books of Wekesa Traders on 31 December,2009.

21/12/2020

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The following balances were extracted from the books of Wekesa Traders on 31 December,2009.

Using the above information, prepare Wekesa Trader’s Trial Balance on 3 December, 2009. (5 marks)

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Explain five circumstances in which a firm may acquire monopoly power (10 marks)

20/12/2020

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Explain five circumstances in which a firm may acquire monopoly power

Circumstances in which a firm may acquire monopoly power include:

If the firm has the sole right to a production technique. This denies other firms the use of the technique.
If the firm has control over strategic inputs. This makes the firm to have sole access to inputs used in the production of the commodity.
If the firm is the only one with large capital required for the venture. Other firms may not be able to raise the capital leaving the field to one firm.
If the firm enjoys economies of scale. This enables the firm to produce at a lower cost than the other firms.
If the firm is set up as a parastatal and given exclusive rights of production of a particular product by the government.
If firms merge. When firms join together to form one large firm, this gives them advantage due to size.
If it is the first firm in a small market that is served by one firm more economically. New firms entering the market may make losses due to low sales hence the original firm remains dominant.
Lithe firm has patent rights/copyright which bars other firms from producing) selling the products.

Explain five circumstances in which a firm may acquire monopoly power (10 marks)

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Explain five merits of direct taxes to the government.

20/12/2020

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Explain five merits of direct taxes to the government.

Merits of direct taxes to the government include:

Economical to collect - it provides higher revenue at lower costs of administration since collection is executed at the source e.g. PAYE.
Certainty - the government knows the amount of tax, the manner and time of payment, hence budget and plan for it. It is also difficult to evade.
Convenience - it is collected from the source at regular intervals making it easy and very convenient.
Price stability - it is a useful tool for maintaining stable prices by affecting disposable income and consequently influencing aggregate demand.
Equity - the progressive nature of direct taxes distributes tax burden equitably, thus the government is able to redistribute wealth by heavily taxing those who earn more as opposed to those earning little.
Simple to determine - Every wage level falls into predictable tax brackets.
Easy to administer - it is very difficult to evade hence very easy to administer as the collection points are also fewer as opposed to collecting tax directly from individuals.
It is elastic - it expands with increased income and population.

Explain five merits of direct taxes to the government.

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The table below shows the demand and supply schedules for product A in a week.

20/12/2020

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The table below shows the demand and supply schedules for product A in a week.

Using the information given in the table above, draw the demand and supply curves showing the market equilibrium for the product. (10 marks)

The demand and supply curves for product X showing its market equilibrium.

The table below shows the demand and supply schedules for product A in a week.

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State four features of a perfectly competitive market.

20/12/2020

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State four features of a perfectly competitive market.

Features of a perfectly competitive market include:

Large number of buyers and sellers.
The buyers and sellers have perfect knowledge of the market conditions.
No government interference in the market.
No transport costs are incurred.
Free entry and exit of firms.
There is perfect mobility of factors of production
Both buyers and sellers are prize takers.
There is perfect mobility of factors of production.

State four features of a perfectly competitive market.

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Highlight four factors that a firm may consider when deciding on the goods to produce.

20/12/2020

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Highlight four factors that a firm may consider when deciding on the goods to produce.

Factors that a firm may consider when deciding on the goods to produce include:

Expected demand - where demand is low, a firm will only produce a few goods or not produce at all.
Availability of capital resources - this would help decide on the level of production.
Time period - the firm must consider whether short or long term production is required.
Availability of labour - labour supply of the relevant skills would be required.
Cost of raw materials - the firm must consider availability and cost of buying and transporting raw materials.
Government policy - the firm must abide by the rules and regulations of the country.

Highlight four factors that a firm may consider when deciding on the goods to produce.

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Zawadi operates a hardware business in her home town. Outline four methods she may use to determine prices for her goods other than the forces of demand and supply.

20/12/2020

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Zawadi operates a hardware business in her home town. Outline four methods she may use to determine prices for her goods other than the forces of demand and supply.

Methods of determining prices other than the forces of demand and supply include:

Bargaining/Haggling.
Abiding by government policy.
Tendering - offers are invited to quote for a price. Goods are sold to buyers with the quotation that best meets Zawadi’s expectations.
Bidders make offers for goods and the bidder with the highest offer takes the goods(sale by auction).
Retail price maintenance - sell goods according to the dictates of the producer.
Can make use of written, audio, visual and motion facilities.
Offers faster delivery of adverts.
Price discrimination.

Zawadi operates a hardware business in her home town. Outline four methods she may use to determine prices for her goods other than the forces of demand and supply.

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Highlight four advantages of promoting sales through the internet.

20/12/2020

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Highlight four advantages of promoting sales through the internet.

Advantages of promoting sales through the internet include:

A firm can advertise goods universally.
Access to world markets for increased sales.
Instant receipt of orders from all over the world.
Payment received through electronic fund transfer (EFT).
Reduced paperwork on customer records.
Reduced cost of sales promotion.

Highlight four advantages of promoting sales through the internet.

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Given the statements in the table below, indicate the type of entry to be made in the relevant ledger accounts:

20/12/2020

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Given the statements in the table below, indicate the type of entry to be made in the relevant ledger accounts:

Entries to be made:

Credit entry.
Credit entry.
Debit entry.
Debit entry.

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Highlight four measures that a government may take to reduce the mortality rate in a country.

20/12/2020

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Highlight four measures that a government may take to reduce the mortality rate in a country.

Measures that a government may take to reduce the mortality rate in a country include:

Availability of modern medicine.
Improved standards of living.
Minimizing internal conflicts and wars..
Improving environmental sanitation.
Sensitization on public and personal hygiene.
Disaster preparedness e.g. on floods, fires.
Effect traffic laws to curb road accidents.
Control abuse of alcohol and drugs.

Highlight four measures that a government may take to reduce the mortality rate in a country.

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Outline four challenges that may be encountered when measuring national income using the output approach.

20/12/2020

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Outline four challenges that may be encountered when measuring national income using the output approach.

Challenges that may be encountered in measuring national income using the output approach include:

Deciding on what goods and services to include in measuring national income.
Inadequate output data.
Some activities earning income are considered illegal and not included in the measurement of national income.
Determining the value of national output.
How to value output in the subsistence sector.
Deciding on the price to use for the goods that have been kept as stock.
Problem of valuing government input as they are not factored at market rates.

Outline four challenges that may be encountered when measuring national income using the output approach.

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There has been a decline in the demand for wooden furniture. Explain five factors that may have caused this trend. (10 marks)

19/12/2020

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There has been a decline in the demand for wooden furniture. Explain five factors that may have caused this trend

Factors that may have caused a decline in the demand for wooden furniture include:

Decline in consumer incomes.
This may reduce their purchasing power hence less able to afford the furniture.
Fall in the price of substitutes.
Furniture made from other materials like plastic and metal may be cheaper.
Increase in the price of wooden furniture.
This nukes the furniture to be out of reach for most consumers
Government policy
The government may have increased rates on timber products hence making the furniture more expensive
Unfavourable change in tastes and preferences
Consumers may be purchasing more plastic and metallic furniture.
Decline in population
A decrease in population will lead to reduced numbers of potential and actual customers
Expectations of a future fall in price.
Consumers may be anticipating a fall in price in the future hence currently suspend buying.

There has been a decline in the demand for wooden furniture. Explain five factors that may have caused this trend

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Explain five features of monopolistic competition. (10 marks)

18/12/2020

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Features of monopolistic competition

Features of monopolistic competition include:

Many sellers and buyers.
The market is comprised of many sellers and buyers who operate independently.
Free entry and exit into the market.
There are no barters to entry into, or exit from the market.
Commodities sold are very close substitutes.
Firms sell similar products but which are highly differentiated by names, shapes, colour, odour and packaging.
All firms earn normal profits in the long run.
Some firms may earn super normal profits in the short run.
Firms are independent.
There is little interdependence in terms of pricing and quantities to produce.
Entry or exit of a firm does not significantly affect the market.
None of the firms can influence the market supply by joining or leaving the industry.
No single firm has control over the factors of production.
All firms acquire the factors at the prevailing market rates and conditions.
Perfect knowledge of the market Buyers and sellers are aware of the prices, quantities and other market factors.

Explain five features of monopolistic competition

KPLC Workers at work in Kenya. KPLC is a monopoly.

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Amboseli Roses is a horticultural company producing flowers. Explain six factors that may influence the choice of a channel for distributing its products.

17/12/2020

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Amboseli Roses is a horticultural company producing flowers. Explain six factors that may influence the choice of a channel for distributing its products.

Factors that may influence the choice of a channel for distributing flowers include:

Nature of the flowers - flowers are perishable and therefore need a short channel in order to be distributed quickly.
Cost. The cost of different channels of distribution should be considered and the cheapest channel used.
Nature of the market. If consumers are widespread, then agents may be necessary to reach them.
Tastes and preferences of consumers. Consumers may have specific preferences which might require the personal attention of the producer hence use of a shorter channel.
Competition. Where competition is high, the producer will have to close to the consumers and will therefore use a short channel of distribution.
Quantity. If the quantity of flowers to be sold is large, then more middlemen may be required.
Availability of technical personnel. If the producer does not have the required technical personnel, then he may have to use a longer channel.

Amboseli Roses is a horticultural company producing flowers. Explain six factors that may influence the choice of a channel for distributing its products.

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The cost of consumer goods and services for a representative basket of an average family is given below.

17/12/2020

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The cost of consumer goods and services for a representative basket of an average family is given below.

Determine the increase in Consumer Price Index using 2006 as the base year.

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With the aid of a diagram, explain the effect of an increase in the supply of a commodity while its demand remains constant.

On 1st January 2011 , Jumo Traders had shs 22,500 in cash and shs 250,000 at bank.During the month, the following transactions took place:

Explain five benefits that may be realized by a country as a result of government policy to relocate industries to rural areas.

State four basic features of a market.

Highlight four factors that may cause the supply curve to shift to the right.

Outline four factors that may make a producer to by-pass the wholesaler when distributing goods.

Below are some entries in the cash book of Romano Traders for the month of July 2010.

Highlight four circumstances under which the capital of a business may change.

State the type of unemployment relating to each of the following descriptions:

The following information relates to Karibu traders for the year ended 31 December 2008.

The following balances were extracted from the books of Wekesa Traders on 31 December,2009.

Explain five circumstances in which a firm may acquire monopoly power

Explain five merits of direct taxes to the government.

The table below shows the demand and supply schedules for product A in a week.

State four features of a perfectly competitive market.

Highlight four factors that a firm may consider when deciding on the goods to produce.

Zawadi operates a hardware business in her home town. Outline four methods she may use to determine prices for her goods other than the forces of demand and supply.

Highlight four advantages of promoting sales through the internet.

Given the statements in the table below, indicate the type of entry to be made in the relevant ledger accounts:

Highlight four measures that a government may take to reduce the mortality rate in a country.

Outline four challenges that may be encountered when measuring national income using the output approach.

​There has been a decline in the demand for wooden furniture. Explain five factors that may have caused this trend

Features of monopolistic competition

Amboseli Roses is a horticultural company producing flowers. Explain six factors that may influence the choice of a channel for distributing its products.

The cost of consumer goods and services for a representative basket of an average family is given below.

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There has been a decline in the demand for wooden furniture. Explain five factors that may have caused this trend