WAEC SSCE - Economics - 2006

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The study of economics is concerned with understanding how individuals, businesses, and governments make decisions about how to allocate scarce resources in order to satisfy unlimited wants and needs. By studying economics, individuals can gain a better understanding of how markets work and how various economic factors, such as prices, wages, and interest rates, are determined. This understanding can help individuals make rational decisions about how to use their own resources, such as their time and money. It can also help them understand the impacts of various economic policies and decisions, such as taxes and regulations, on their own lives and on society as a whole. While the study of economics can certainly be useful for individuals looking to accumulate wealth or change jobs, it is not a guarantee of either of these outcomes. Similarly, it is not an endorsement of evading taxes, as taxes are an important part of how governments fund public goods and services that benefit society as a whole.

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In order to correct a deficit balance of payment, a country may decide to increase its domestic production. This means that the country would focus on producing more goods and services within its own borders, which would reduce the need for imports from other countries. By reducing imports, the country can improve its balance of payments by decreasing the amount of money that it is sending out of the country. Increasing imports, on the other hand, would worsen the balance of payments deficit, as more money would be flowing out of the country to pay for goods and services from other nations. Domestic expenditure, such as spending by consumers and businesses, may have an impact on the balance of payments, but it is not a direct solution to correcting a deficit balance of payments. Finally, imposing a tax on infant industries, which are newly established domestic businesses, would likely harm the country's economy rather than improve the balance of payments. These industries need support and protection to grow and compete with established foreign industries, and imposing a tax on them could hinder their development.

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Advertising expenses would not be necessary under perfect competition because consumers would have complete knowledge of goods. In a perfectly competitive market, there are many firms selling the same product, and consumers have access to all the information they need to make informed purchasing decisions. Therefore, advertising would not be necessary to inform consumers about the product or to differentiate one firm's product from another's.

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An invisible term refers to a service or product that cannot be seen or touched physically. Among the options provided, "banking services" is an invisible term because it refers to the various services provided by banks such as loans, deposits, and credit facilities, among others. These services cannot be seen or touched as they are intangible. On the other hand, "petroleum products," "processed rice," and "processed milk" are all visible and tangible products that can be seen and touched physically.

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A mixed economy combines the characteristics of both planned and capitalist economies. In a planned economy, the government controls all aspects of the economy, including production and distribution of goods and services. In a capitalist economy, individuals and private companies own and control the means of production, and prices are determined by supply and demand in the market. In a mixed economy, both private individuals and the government play a role in the economy. Private individuals and companies are free to own and control the means of production and participate in the market, but the government also regulates and intervenes in the economy to ensure that it operates in the best interests of society as a whole. The government may provide public goods and services, such as education and healthcare, and may also regulate businesses to ensure fair competition and prevent monopolies. In addition, the government may provide social safety nets, such as welfare programs and unemployment benefits, to protect individuals from the risks of the market. In a mixed economy, the balance between government intervention and private enterprise can vary depending on the specific needs and goals of the society. The aim of a mixed economy is to combine the efficiency of market-driven capitalist systems with the social welfare and stability of planned economies. In summary, a mixed economy combines the characteristics of both planned and capitalist economies. It allows for private ownership and control of production and distribution, while also allowing for government intervention to ensure social welfare and stability.

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The form of tax evasion is wrong declaration of earnings. This means intentionally reporting an incorrect amount of income to the government in order to pay less taxes or avoid paying taxes altogether. For example, someone might fail to report all of the income they earned from their job, or they might overstate their deductions in order to reduce their taxable income. This is illegal and can result in penalties or even criminal charges. Payment of flat rate tax, constant change of employment, and low capacity utilization are not necessarily forms of tax evasion. Flat rate tax is a legitimate tax system where everyone pays the same rate regardless of their income level. Constant change of employment and low capacity utilization may have tax implications, but they are not inherently illegal or fraudulent.

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One of the factors affecting the geographical distribution of population is the climate conditions of the different parts of the country. The climate of a region can influence where people choose to live, as some areas may have more favorable conditions than others. For example, areas with moderate temperatures, abundant rainfall, and fertile land are often more attractive to people than areas with extreme temperatures, arid conditions, or poor soil quality. People tend to migrate to areas where the climate is favorable for their preferred lifestyle, such as farming, fishing, or urban living. Thus, climate conditions play an important role in determining the distribution of population in a country. However, other factors such as economic opportunities, social and political conditions, and cultural preferences also play a role in determining the distribution of population.

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The full meaning of OPEC is the "Organization of Petroleum Exporting Countries". OPEC is a group of 13 countries that cooperate and coordinate their petroleum production policies to stabilize oil markets, ensure a regular supply of petroleum to consumers, and secure a fair return on their petroleum exports. The organization was founded in 1960 and is headquartered in Vienna, Austria. OPEC member countries control a significant portion of the world's oil reserves and production, making them a powerful force in the global energy market.

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One of the functions of the International Monetary Fund (IMF) is to provide financial assistance to member states that are experiencing temporary difficulties in their balance of payments. This means that the IMF may provide loans or other forms of financial support to member countries that are struggling to pay for their imports and meet their international obligations. The IMF may also provide policy advice to these countries in order to help them address the underlying causes of their balance of payments difficulties and improve their economic performance. Overall, the IMF's role is to promote international monetary cooperation and exchange rate stability, facilitate balanced growth of international trade, and assist in the sustainable economic development of its member countries.

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Most of the problems of economics arise as a result of "competing demand for scarce resources". Scarce resources are resources that are limited in quantity and cannot be easily replaced or replenished, such as land, labor, and capital. In an economy, there are many different groups, such as individuals, businesses, and governments, all competing for access to these scarce resources in order to produce goods and services. This creates a problem because there is only a limited amount of resources available, which means that some groups will inevitably have to go without. For example, if there is a limited amount of land available for farming, farmers and other groups, such as real estate developers, will have to compete for access to that land. The more demand there is for the land, the higher the price will be, which can make it difficult or impossible for some groups to access it. This problem of competing demand for scarce resources is at the heart of many economic issues, such as inflation, income inequality, and unemployment. Economists study these problems in order to understand how they arise and how they can be addressed through policies and other interventions.

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The agricultural system that is mainly for the cultivation of food crops for family consumption is subsistence farming. Subsistence farming is a type of farming where farmers produce crops and livestock to meet the needs of their family and themselves. The farmers in this system rely on traditional farming techniques and use simple tools and equipment to cultivate their crops. The harvested crops are primarily consumed by the family, and any excess can be sold in the local market. Subsistence farming is usually practiced in rural areas and is characterized by small-scale farming. The farmers in this system usually grow a variety of crops such as maize, beans, cassava, and potatoes, which are suited to the local soil and climate conditions. The farmers also raise livestock such as cows, goats, and chickens for food, and use animal manure as a natural fertilizer for their crops. In summary, subsistence farming is a traditional agricultural system that is mainly for the cultivation of food crops for family consumption. It is characterized by small-scale farming, the use of simple tools and equipment, and reliance on traditional farming techniques.

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Mining is an example of primary production. Primary production involves the extraction and harvesting of natural resources from the environment. In the case of mining, natural resources such as minerals, metals, coal, and oil are extracted from the earth. These raw materials are then processed and transformed into products that can be used by industries and consumers. Secondary production involves the manufacturing and processing of raw materials into finished products, while tertiary production involves the provision of services such as transportation, education, and healthcare. Advanced production is not a commonly used term in economics, but it may refer to production methods that involve advanced technology and innovation.

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A cheque book is typically issued to customers who have a current account with a bank. A current account is a type of bank account that allows customers to deposit and withdraw money frequently, and also provides various other banking services such as cheque payments, standing orders, and direct debits. While some banks may issue cheque books to customers with other types of accounts, such as savings accounts or fixed deposit accounts, this is less common. Savings accounts and fixed deposit accounts are generally used for saving money, and have restrictions on the number of withdrawals and transactions that can be made. Time deposit accounts, also known as term deposits, are a type of fixed deposit account with a specific term or maturity period, during which the funds cannot be withdrawn without penalty. Therefore, if you need a cheque book, it is advisable to open a current account with a bank, as this is the most common type of account that comes with a cheque book facility.

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The economic system in which the state takes the economic decisions through detailed planning is called socialism. In a socialist system, the government owns and controls the means of production, such as factories and natural resources, and makes decisions on how to allocate resources and distribute goods and services to the people. The goal of socialism is to promote social and economic equality by ensuring that everyone has access to basic necessities, such as food, shelter, and healthcare, regardless of their income or social status.

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The amount proposed for payment of wages and salaries in a budget is regarded as part of recurrent expenditure. Recurrent expenditure refers to the routine expenses that a government or organization incurs on a regular basis to keep its operations running, such as salaries, maintenance costs, and other recurring expenses. In contrast, direct investment refers to the money spent on buying or creating assets that will generate income in the future, such as buying a new factory or investing in a startup company. Recurrent revenue refers to the regular income that an organization or government receives, such as taxes, fees, and other sources of income. Finally, capital receipts refer to the money that an organization or government receives from the sale of its assets or from borrowing money.

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An increase in the quantity of goods and services produced in a country that raises its national income is known as economic growth. This means that the country is producing more goods and services than before, which leads to an increase in its overall income or Gross Domestic Product (GDP). Economic growth is an important goal for countries because it allows them to improve their standard of living, create more job opportunities, and invest in social services such as education and healthcare. It is different from economic development, which refers to a broader concept that includes improvements in the quality of life and social welfare of the people, in addition to economic growth.

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The buying and selling of shares is a function performed mostly by "stock exchanges." A stock exchange is a marketplace where shares of publicly-traded companies are bought and sold by investors. When a company wants to raise money, it can issue shares of stock to the public. Investors can then buy these shares, which represent a portion of ownership in the company. Shares can be bought and sold on the stock exchange by individual investors, institutional investors, and other market participants. The stock exchange provides a platform for buyers and sellers to meet and exchange shares, and it facilitates the process of price discovery, where the market determines the price at which shares will be bought and sold. The stock exchange also provides transparency, as investors can see the current price of a company's shares and the volume of shares traded, among other information. Overall, stock exchanges play a critical role in the functioning of modern financial markets, as they provide liquidity, transparency, and a platform for companies to raise capital.

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The reward to capital as a factor of production is "interest." Capital refers to the machinery, equipment, and other assets used in the production process. Interest is the return that the owners of capital receive for allowing others to use their assets. Interest is often calculated as a percentage of the amount of capital invested, and it is paid to the owners of the capital as compensation for the risk they take on by investing in a particular project or enterprise. The interest rate reflects the opportunity cost of investing in one project over another, and it is influenced by factors such as inflation, government policies, and the overall level of economic activity. Overall, interest is an important source of income for those who own capital, and it plays a critical role in encouraging investment and economic growth.

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The motive for holding money for investing in securities is known as speculative motive. It refers to the desire to earn a profit by purchasing securities that are expected to increase in value over time. Investors who hold money for this purpose are willing to take on risk in the hopes of achieving a higher return on their investment. This motive is different from the transactional motive, which involves holding money to meet immediate spending needs, and the accumulation motive, which involves holding money for future expected expenses. The deflationary motive is also different, as it involves holding money to take advantage of falling prices in the economy.

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A debenture holder is entitled to payment in the form of interest. Interest is the money paid by a borrower to a lender as compensation for the use of the lender's money. When you hold a debenture, you are essentially loaning money to a company, and the interest paid on the debenture is the company's way of compensating you for the use of your money. In other words, the company is paying you interest as a way of "renting" your money. This interest payment is usually made at regular intervals, such as annually or semi-annually, until the debenture reaches maturity and the principal amount is repaid.

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The legal tender in West Africa is currency. Legal tender is a form of payment that a creditor is required by law to accept as payment for a debt. In West Africa, the official currency used in most countries is the West African CFA franc. It is used in countries such as Benin, Burkina Faso, Ivory Coast, Mali, Niger, Senegal, and Togo. The use of other forms of payment such as treasury bills, shares, or credit cards is not mandated by law and is subject to agreement between the parties involved.

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The market price of a commodity is normally determined by the interaction of the force of demand and supply. This means that the price of a commodity is determined by how much of it is available in the market (supply) and how much people want to buy it (demand). If the supply of a commodity is high and the demand is low, the price will be low. On the other hand, if the demand for a commodity is high and the supply is low, the price will be high. The law of demand and other factors can also influence the price, but the interaction of supply and demand is the primary factor that determines the market price of a commodity.

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The objective of economic integration is the free movement of persons, goods, and services. This means removing trade barriers such as tariffs and quotas to facilitate the movement of goods and services across national borders without restrictions. This allows countries to specialize in producing goods and services that they are good at and import goods and services that they need from other countries, leading to a more efficient allocation of resources and increased economic growth. Additionally, the free movement of persons creates more opportunities for employment, education, and investment, leading to increased economic activity and development. Harmonization of cultural practices is not an objective of economic integration, and the payment of high tariffs and dumping of goods in less developed countries are barriers to economic integration.

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When the quantity of a commodity supplied increases and the quantity demanded decreases, there will be a fall in price. This is due to the law of supply and demand, which states that the price of a good is determined by the intersection of the supply and demand curves. When there is an increase in supply and a decrease in demand, the market becomes more saturated with the commodity, and there is a surplus of goods available. In order to sell off this surplus, producers will lower their prices in order to entice consumers to buy. As a result, the price of the commodity will fall until it reaches a new equilibrium point where the quantity supplied and quantity demanded are equal.

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The burden of a tax finally rests on the incidence of taxation. This refers to the ultimate economic impact of a tax, which can either be borne by the person or entity that is legally responsible for paying the tax (the tax object), or it can be passed on to someone else in the form of higher prices or reduced profits (the tax incidence). For example, if a government imposes a tax on cigarettes, the legal responsibility for paying the tax falls on the cigarette manufacturers or importers (the tax object). However, the ultimate burden of the tax may be passed on to the consumers in the form of higher prices for cigarettes, which means that the incidence of the tax falls on the consumers. The incidence of taxation is an important concept because it helps us understand who is actually bearing the economic burden of a tax. It can also help policymakers design tax policies that are more equitable and efficient.

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The mechanism which allows the price of a commodity to be fixed either above or below the equilibrium is known as "price control." Price control refers to government policies or regulations that set a specific price ceiling or floor for a particular commodity or service. When the government sets a price ceiling, it means that the price cannot be charged beyond a certain limit. This often results in a shortage of the commodity or service, as the quantity demanded exceeds the quantity supplied at the artificially low price. On the other hand, a price floor means that the price cannot fall below a certain level. This often leads to a surplus of the commodity or service, as the quantity supplied exceeds the quantity demanded at the artificially high price. Overall, price controls can lead to inefficiencies in the market and unintended consequences, such as black markets or decreased incentives for producers to supply the commodity or service.

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An owner-manager of a firm can also be called an "entrepreneur". An entrepreneur is someone who starts and runs their own business, taking on financial risk in the hopes of making a profit. As an owner-manager, the entrepreneur has a personal stake in the success of the firm. They have invested their own money, time, and effort into building and growing the business. This is different from someone who is just a shareholder or investor in the company, as they are not involved in the day-to-day operations of the business. The owner-manager is responsible for making key decisions about the direction of the company, such as which products or services to offer, how to market them, and how to manage finances. They are also responsible for managing employees, setting goals and objectives for the company, and ensuring that the business is profitable. Overall, the term "entrepreneur" is a fitting label for an owner-manager because it captures the idea of someone who takes on risk in order to create and grow a business, while also highlighting the importance of innovation, creativity, and hard work in the world of business.

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Increasing the supply of money by the government to meet its own expenditure plans is likely to be inflationary. This means that the value of money will decrease and the prices of goods and services will increase. This happens because there is more money in circulation and therefore there is more demand for goods and services. As a result, sellers can increase their prices to match the increased demand. This can lead to higher inflation rates, making it more expensive for people to buy goods and services.

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The distribution of goods and services can be hindered by too many middlemen. Middlemen are individuals or businesses that facilitate the exchange of goods and services between the producers and consumers. While middlemen can provide valuable services such as transportation, storage, and market information, having too many middlemen can lead to inefficiencies in the distribution process. For example, each middleman adds a markup to the price of the goods or services they handle, which can increase the final price for the consumer. Additionally, each middleman also adds a layer of complexity to the distribution process, which can result in delays and miscommunication. Moreover, having too many middlemen can also make it difficult for producers to get their products to market efficiently, as they may have to deal with multiple intermediaries, each with their own requirements and procedures. This can result in added costs and time delays, which can ultimately hinder the distribution of goods and services.

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When the price of a commodity rises, the demand for the commodity will generally fall. This is because as the price of the commodity becomes more expensive, consumers are less likely to buy it or may look for substitutes that are cheaper. As a result, the demand for the commodity decreases. However, this may also incentivize producers to increase the supply of the commodity, as they are able to make more profit from selling it at a higher price. Overall, the relationship between price and demand/supply in the market can be complex and influenced by many factors, including consumer preferences, production costs, and availability of substitutes.

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In a rapidly growing economy, a change in technology that is labor-saving is likely to cause structural unemployment. Structural unemployment occurs when workers' skills are no longer in demand because technology has replaced them. This means that the new technology is more efficient and can do the job better than the workers. As a result, these workers may struggle to find new jobs in the same field and may need to retrain or acquire new skills to remain employable. Structural unemployment can be a challenging issue for a growing economy because it can lead to income inequality and social unrest.

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The formula index of export prices/index of import prices * 100 is used to measure the commodity terms of trade between two countries. Commodity terms of trade refers to the ratio of the price of a country's exports to the price of its imports. This formula takes into account the prices of goods that are both imported and exported between two countries, and expresses their relationship as an index. If the resulting number is greater than 100, it means that the country's exports are becoming more expensive relative to its imports. Conversely, if the number is less than 100, it means that the country's exports are becoming cheaper relative to its imports. Therefore, this formula is used to gauge the relative strength of a country's exports compared to its imports and can have an impact on a country's balance of payments and overall economic health.

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Standardization of products or services refers to the process of establishing a set of uniform specifications, features, and characteristics for a product or service, such that it meets a certain level of quality and consistency. This allows for the product or service to be produced or delivered in a consistent and efficient manner, regardless of the location or personnel involved. This feature is often associated with large firms, which have the resources and expertise to develop and implement standardized processes and procedures. Small firms may also engage in standardization to improve their competitiveness and efficiency. Retailers and wholesalers are primarily concerned with the distribution of products and may not be directly involved in the standardization process.

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The average revenue (AR) curve for a monopolist is above the marginal revenue (MR) curve. This is because a monopolist has the power to influence the market price of their product by controlling the quantity supplied. Unlike a perfectly competitive market, where the market sets the price and individual firms must take it or leave it, a monopolist can charge a higher price by restricting output. Therefore, the demand curve faced by a monopolist is downward sloping, meaning that to sell more units of output, the monopolist must lower the price for all units sold. As a result, the AR curve will be above the MR curve, since each additional unit sold will not only generate revenue at the market price but will also lower the price for all units sold. In other words, the monopolist must lower the price for all units sold to sell one more unit, which means that the average revenue per unit sold is lower than the price for the last unit sold.

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The equilibrium level of output of a monopolist is determined at a point where marginal revenue equals marginal cost. A monopolist is a single seller in a market with no close substitutes for its product, which gives the monopolist market power to control the price of the product. The monopolist's goal is to maximize its profit by producing the level of output that generates the highest profit. To determine this level of output, the monopolist must take into account the relationship between the marginal revenue it receives from selling an additional unit of output and the marginal cost of producing that unit. Marginal revenue is the additional revenue generated by selling one more unit of output, while marginal cost is the additional cost of producing one more unit of output. The monopolist will continue to produce more output as long as the marginal revenue from selling an additional unit of output is greater than the marginal cost of producing that unit. The monopolist will stop producing more output when the marginal revenue from selling an additional unit of output is equal to the marginal cost of producing that unit. At this point, the monopolist has reached the equilibrium level of output, where it is maximizing its profit. In summary, the equilibrium level of output of a monopolist is determined at a point where marginal revenue equals marginal cost. This is the level of output where the monopolist is maximizing its profit.

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A movement along the same demand curve either upwards or downwards as a result of a change in price implies a change in quantity demanded. This means that the quantity of the good or service demanded by consumers has changed in response to a change in price, but all other factors, such as consumer income and preferences, have remained constant. As the price of a good or service increases, the quantity demanded generally decreases, and vice versa. This relationship between price and quantity demanded is known as the law of demand. It is important to note that a change in demand, which would result in a shift of the demand curve to the left or right, is caused by factors other than the price of the good or service, such as changes in consumer income or preferences.

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The amount of satisfaction obtained from the consumption of a commodity at a particular time is called total utility. Total utility refers to the total amount of satisfaction or pleasure that a consumer derives from the consumption of a certain amount of a commodity. For example, if a person drinks two cups of coffee, the total utility they derive from the coffee is the combined satisfaction they get from both cups. Marginal utility, on the other hand, refers to the additional satisfaction that a consumer gets from consuming one more unit of a commodity. Diminishing returns occurs when the marginal utility of a commodity starts to decrease as the consumer consumes more of it. Average utility is the total utility divided by the quantity consumed, and it represents the average level of satisfaction per unit of the commodity consumed. However, total utility is the overall level of satisfaction derived from the consumption of a particular quantity of a commodity.

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The tendency for prices to rise while the value of money falls is known as inflation. Inflation refers to a sustained increase in the general price level of goods and services in an economy over a period of time. When inflation occurs, the purchasing power of money decreases, meaning that the same amount of money can buy fewer goods and services than before. For example, if the price of a loaf of bread was $1 last year and it is now $1.10, the value of money has decreased, and inflation has occurred. This is because it now takes more money to buy the same amount of bread. Depreciation, on the other hand, refers to a decline in the value of an asset, such as a currency, over time. Deflation is the opposite of inflation and refers to a sustained decrease in the general price level of goods and services in an economy.

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(a) Types of money.

• (i) Commodity money. Money whose material has intrinsic value of its own and can be used as an ordinary commodity as well as a medium of exchange, for example gold, silver, cowries or salt. Its value as money is close to its value as a good.
• (ii) Token money. Money whose face (nominal) value is greater than the value of the material from which it is made, such as coins and notes; it is accepted because of law and public confidence, not the worth of its metal or paper.
• (iii) Fiduciary issue. The part of a country's note issue that is not backed by gold or other reserves but rests only on public confidence and the credit of the government or central bank.
• (iv) Quasi money. Near money: assets that are not money themselves but can be turned into money quickly and easily, such as time (savings) deposits, treasury bills and bills of exchange.

(b) Four functions of money.

1. Medium of exchange - it is generally accepted in payment for goods and services, removing the difficulties of barter.
2. Measure (unit) of value - it provides a common yardstick in which the prices of all goods and services are expressed.
3. Store of value - purchasing power can be kept in the form of money and used later.
4. Standard of deferred payment - it allows debts and future payments to be fixed and settled in money terms.

Examination reminder: keep token money (face value above material value) distinct from fiduciary issue (unbacked notes), as these two are commonly confused.

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The supply function \( Q_s = 25 + 0.25P \) tells us the quantity of gasoline supplied at each price. To find quantity supplied at a given price, substitute the price into the equation and evaluate.

(a) Quantity supplied at each price

\( P = 0 \): \( Q_s = 25 + 0.25(0) = 25 \) litres

\( P = 24 \): \( Q_s = 25 + 0.25(24) = 25 + 6 = 31 \) litres

\( P = 40 \): \( Q_s = 25 + 0.25(40) = 25 + 10 = 35 \) litres

\( P = 60 \): \( Q_s = 25 + 0.25(60) = 25 + 15 = 40 \) litres

\( P = 80 \): \( Q_s = 25 + 0.25(80) = 25 + 20 = 45 \) litres

(b)(i) Supply schedule

(b)(ii) Supply curve

Plot price on the vertical axis and quantity supplied on the horizontal axis, then join the points \( (25,0),\ (31,24),\ (35,40),\ (40,60),\ (45,80) \). Because the equation is linear with a positive slope, the points lie on a straight, upward-sloping line running from lower-left to upper-right. The positive coefficient on \( P \) confirms the direct relationship stated by the law of supply: as price rises, quantity supplied rises.

Examination reminder: the constant \( 25 \) is the quantity supplied even at zero price (the intercept), while the slope \( 0.25 \) shows that each one-Naira rise in price raises quantity supplied by \( 0.25 \) of a litre.

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(a)(i) Why a producer enters a competitive market. A producer enters when existing firms are earning supernormal (abnormal) profit, that is, when price (average revenue) exceeds average total cost. Because there is freedom of entry in perfect competition and firms have perfect knowledge, the prospect of these profits attracts new firms into the industry.

(a)(ii) Why a producer leaves a competitive market. A producer leaves when it is making losses, that is, when price falls below average total cost (and, in the short run, below average variable cost so that it cannot even cover its variable costs). Freedom of exit allows unprofitable firms to leave until the remaining firms earn only normal profit.

(b) Two ways consumers benefit from perfect competition.

• Lower prices. Intense competition and free entry drive price down to the level of minimum average cost in the long run, so consumers pay the lowest sustainable price.
• Efficient allocation of resources. Production takes place at the lowest cost and price equals marginal cost, so consumers get the goods they want without waste; there is also no wasteful spending on advertising since the product is homogeneous.

(c) Two conditions for profit maximisation of a perfectly competitive firm.

1. Marginal cost equals marginal revenue: \( MC = MR \).
2. The marginal cost curve cuts the marginal revenue curve from below (\( MC \) is rising at that output), which ensures it is a maximum and not a minimum.

Examination reminder: \( MC = MR \) alone is not enough; the second-order condition that \( MC \) is rising is what confirms profit is maximised.

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(a) Two strategies of industrialisation.

(i) Import substitution. This is a strategy in which a country builds local industries to produce goods that were formerly imported, so as to satisfy the domestic market from home production. It is usually protected by tariffs, quotas and import bans on the affected goods. Its aims are to save foreign exchange, create local employment and reduce dependence on foreigners; its weakness is that the industries often stay small, high-cost and dependent on imported inputs.

(ii) Export promotion. This is a strategy in which a country deliberately develops industries to produce goods mainly for export to earn foreign exchange. Government supports it with incentives such as export subsidies, tax reliefs, favourable exchange rates and export-processing zones. It exposes firms to world competition, encourages efficiency and earns foreign exchange, though it can be vulnerable to unstable world markets and trade barriers abroad.

(b) Four objectives of industrial development programmes in Nigeria.

1. To create employment and reduce unemployment.
2. To diversify the economy and reduce over-dependence on a single product such as crude oil.
3. To promote local processing of raw materials and add value to primary products.
4. To conserve and earn foreign exchange (by substituting imports and promoting exports).

Other valid objectives include developing local technology and skills, and encouraging even regional development.

Examination reminder: contrast the two strategies directly: import substitution looks inward at the home market, while export promotion looks outward at foreign markets.

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(a) Elasticity of supply. Price elasticity of supply measures the degree of responsiveness of the quantity supplied of a good to a change in its price. It is calculated as:

\[ E_s = \frac{\%\ \text{change in quantity supplied}}{\%\ \text{change in price}} \]

(b) When supply is elastic. Supply is elastic when \( E_s > 1 \), that is, when a given percentage change in price brings about a more than proportionate percentage change in the quantity supplied. For example, a \( 10\% \) rise in price that causes a \( 25\% \) rise in quantity supplied is elastic.

(c) Four factors influencing elasticity of supply.

1. Time period. The longer the time available, the more producers can adjust output, so supply is more elastic in the long run than in the short run.
2. Ease of storage. Goods that can be stored cheaply and without spoiling have more elastic supply, because stocks can be released quickly when price rises; perishables are inelastic.
3. Availability and mobility of factors of production. If labour, raw materials and capital can be obtained and shifted easily, output can be raised quickly and supply is elastic.
4. Nature of the good and production technique. Manufactured goods whose output can be expanded quickly are elastic in supply, while agricultural goods with long gestation periods are inelastic.

Cost of expanding production and the number of firms in the industry are also acceptable factors.

Examination reminder: distinguish elastic supply (\( E_s>1 \)) clearly from the special cases of unit elastic (\( E_s=1 \)) and inelastic (\( E_s<1 \)) supply.

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(a) Economic system. An economic system is the organised way in which a society allocates its scarce resources to answer the three basic economic questions: what to produce, how to produce, and for whom to produce. It defines who owns the means of production and how decisions on production, distribution and consumption are made. The main types are capitalism, socialism and the mixed economy.

(b) Four features of a capitalist economy.

1. Private ownership of the means of production. Land, capital and firms are owned and controlled by private individuals, not the state.
2. Freedom of enterprise and choice. Producers are free to produce and sell what they wish, and consumers are free to buy what they can afford.
3. The profit motive. Production is undertaken mainly to earn private profit, which guides what is produced and how.
4. The price mechanism (market forces). The forces of demand and supply, working through prices, allocate resources with little or no government direction; this is the invisible hand.

Other valid features include competition among producers and consumer sovereignty.

Examination reminder: tie each feature to the idea of private decision-making guided by prices, which is the essence of capitalism.

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(a) Wants versus demand. A want is simply a desire or wish for a good or service; it is unlimited and need not be backed by anything. Demand in economics is an effective want: a desire for a good that is backed by both the willingness and the ability to pay, and expressed over a given period at a given price. Thus every demand is a want, but a want becomes demand only when purchasing power and willingness support it. A poor person may want a car (a want) but not demand it because he cannot pay.

(b) Effect on demand, with diagrams. Draw a demand curve \( DD \) on axes with price on the vertical axis and quantity on the horizontal axis, and distinguish a shift of the whole curve from a movement along it.

• (i) A reduction in the number of consumers. Fewer buyers reduce demand at every price, so the demand curve shifts leftward (inward) from \( DD \) to \( D_1D_1 \). This is a fall in demand, not a movement along the curve.
• (ii) A rise in the price of substitutes. When substitutes become dearer, consumers switch to this commodity, so its demand rises and the curve shifts rightward (outward) from \( DD \) to \( D_2D_2 \).
• (iii) A fall in the price of the commodity itself. A change in the good's own price does not shift the curve; it causes a downward movement along the same demand curve to a lower price and larger quantity demanded (extension of demand).

Examination reminder: a change caused by the good's own price is a movement along the curve; a change caused by any other factor is a shift of the whole curve.

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(a) Population census. A population census is the official, periodic head-count of all the people living in a country at a particular time, together with the collection of data on their characteristics such as age, sex, occupation and location. It is usually conducted by government at fixed intervals (commonly every ten years).

(b) Problems of conducting a census in a developing country such as Nigeria.

• Illiteracy. Many respondents cannot read or fill forms, so enumerators must interpret questions, causing errors.
• Poor transport and communication. Bad roads and inaccessible rural or riverine areas make it hard to reach everyone.
• Inadequate finance and trained personnel. A census is costly, and shortage of funds and well-trained enumerators lowers accuracy.
• Cultural and religious objections. Some people refuse to disclose the number, sex or age of household members, or object to being counted.
• Political manipulation. Because revenue allocation and political representation often depend on population, figures may be deliberately inflated, and fear of this undermines accuracy.
• Ignorance and suspicion. Some believe the count is for taxation or conscription and give false information or hide.
• Mobility of the population. Nomads, migrant workers and travellers may be double-counted or missed.

Examination reminder: group your points into practical difficulties (transport, funds, illiteracy) and attitudinal ones (suspicion, political bias) to show a balanced answer.

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(a) Types of farming.

• (i) Peasant (subsistence) farming. Small-scale farming carried out by individual families mainly to feed themselves, using simple tools, family labour and traditional methods on small, scattered plots; only any surplus is sold.
• (ii) Commercial farming. Large-scale, market-oriented farming carried out for profit, using modern inputs such as machinery, improved seeds, fertilisers, hired labour and better management, with the produce sold in the market.
• (iii) State farming. Large farms owned, financed and managed by the government (the state), usually to boost food production, demonstrate modern methods and provide employment.

(b) Two ways increased commercial farming aids economic development.

1. Provision of raw materials and food. Large-scale output supplies industries with raw materials and feeds the growing population, supporting industrial growth and lowering food imports.
2. Employment, income and foreign exchange. Commercial farms create jobs, raise farmers' incomes, and, through the export of cash crops, earn valuable foreign exchange for the economy.

Increased commercial farming also widens the tax base and encourages the growth of agro-allied industries.

Examination reminder: the key contrast is scale and purpose: peasant farming is small and for consumption, commercial farming is large and for profit, and state farming is government-owned.

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(a) Natural resources. Natural resources are the free gifts of nature that can be used to produce goods and services. They include land, mineral deposits, forests, water bodies, wildlife, sunshine, fertile soil and the climate. In economics they are grouped under the factor of production called land, and they command a reward known as rent.

(b) Four roles of natural resources in economic development.

1. Source of raw materials. Minerals, timber, farm land and water supply the inputs that industries process into finished goods, so their availability determines the pattern and scale of industrialisation.
2. Source of government revenue and foreign exchange. Exporting resources such as crude oil, cocoa and solid minerals earns foreign exchange and yields royalties and taxes that finance development.
3. Provision of employment and income. Extracting, processing and marketing resources (mining, farming, fishing, forestry) create jobs and raise the incomes of the people.
4. Attraction of investment and infrastructure. Rich resource endowments attract domestic and foreign investment and encourage the building of roads, railways, power and ports to exploit them, spreading development.

Resources also provide food and a base for the growth of allied and supporting industries.

Examination reminder: stress that resources must be combined with capital, labour and enterprise before they contribute to development; on their own they remain idle potential.

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(a) Sources of government revenue. Government raises money from two broad groups of sources:

• Tax revenue: direct taxes (personal income tax, company income tax, capital gains tax, petroleum profit tax) and indirect taxes (import and export duties, excise duties, value added tax, sales tax).
• Non-tax revenue: royalties, rents and mining rights from natural resources such as oil and solid minerals; profits and dividends from government-owned enterprises; fees, licences, fines and court charges; interest on loans granted by government; grants and aid; and internal and external borrowing.

(b) How a government finances a budget deficit. A budget deficit exists when planned government expenditure exceeds expected revenue. It can be financed by:

1. Internal borrowing - selling treasury bills, treasury certificates and development stocks/bonds to the public, banks and the central bank.
2. External borrowing - loans from foreign governments, and from institutions such as the World Bank and IMF.
3. Running down reserves - drawing on accumulated surpluses or foreign-exchange reserves.
4. Deficit financing by creating money - borrowing from the central bank (in effect printing money), though this risks inflation.
5. Grants and aid from foreign or international bodies.

Examination reminder: separate sources of revenue (how normal income is raised) from deficit financing (how the shortfall is covered), and note that money creation is the most inflationary option.

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(a) Number of persons in each age group

A pie chart is a full circle of \(360^\circ\), so each age group's share of the total population of 245,000 equals its sector angle divided by \(360^\circ\). The angles read from the chart are \(0\text{-}16 = 220^\circ\), \(17\text{-}45 = 75^\circ\), \(46\text{-}60 = 43^\circ\) and \(61+ = 22^\circ\); these correctly add up to \(220+75+43+22 = 360^\circ\).

Applying \(\text{Group} = \dfrac{\text{sector angle}}{360^\circ}\times 245{,}000:\)

• 0-16 years: \(\dfrac{220}{360}\times 245{,}000 = 149{,}722\) persons
• 17-45 years: \(\dfrac{75}{360}\times 245{,}000 = 51{,}042\) persons
• 46-60 years: \(\dfrac{43}{360}\times 245{,}000 = 29{,}264\) persons
• 61+ years: \(\dfrac{22}{360}\times 245{,}000 = 14{,}972\) persons

Check: \(149{,}722 + 51{,}042 + 29{,}264 + 14{,}972 = 245{,}000\) (to the nearest person).

(b) Dependency ratio

The dependants are the young (0-16 years) plus the aged (61+ years); the working, productive group is 17-60 years.

Dependants \(= 149{,}722 + 14{,}972 = 164{,}694\).
Working population \(= 51{,}042 + 29{,}264 = 80{,}306\).

\[\text{Dependency ratio} = \dfrac{\text{dependants}}{\text{working population}}\times 100 = \dfrac{164{,}694}{80{,}306}\times 100 \approx 205\%\]

Using the angles directly gives the same result: \(\dfrac{220+22}{75+43} = \dfrac{242}{118} \approx 2.05\). So the ratio is about \(2:1\) - roughly two dependants rely on every one person of working age.

(c) Three implications of this population structure

1. Heavy dependency burden. With about 61% of the people aged 0-16, the relatively small working group must feed, clothe, house and educate a very large number of non-workers, keeping living standards low.
2. Low savings and capital formation. Most income is spent at once on consumption for dependants, leaving little for saving and investment, which slows economic growth.
3. Pressure on social services. The huge child population forces heavy government spending on schools, clinics and other amenities, straining public finances - though it does promise a large labour force in the future.