WAEC SSCE - Economics - 1998 (Essay)

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The Central Bank of Nigeria (CBN) is the apex financial institution that regulates the money supply, the banking system and the general financial stability of the economy. Its functions flow from this supervisory and monetary role.

Five functions of the CBN:

1. Issue of currency. The CBN has the sole legal right to print and issue the national currency (naira and kobo notes and coins), controlling the amount of cash in circulation.
2. Banker to the government. It keeps government accounts, receives government revenue, makes payments on the government's behalf and advises the government on financial and economic matters.
3. Banker to and supervisor of commercial banks (bankers' bank). It holds the reserves of commercial banks, clears cheques between them and licenses and regulates their operations.
4. Lender of last resort. It lends to commercial banks that are temporarily short of funds, preventing bank failures and maintaining confidence in the banking system.
5. Controller of monetary policy. It regulates the volume of credit and money supply using tools such as the open market operations, bank (discount) rate, cash reserve ratio and liquidity ratio, in order to control inflation and support growth.

Other acceptable points include managing the country's external reserves and foreign exchange, and maintaining the external value of the naira.

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Industrialization is the process of building and expanding manufacturing and processing industries in an economy. For a developing country like Nigeria, it is central to structural change and economic development. Its roles include:

1. Employment creation. Industries employ large numbers of skilled and unskilled workers, reducing unemployment and raising incomes.
2. Diversification of the economy. Manufacturing reduces Nigeria's over-dependence on the export of crude oil and primary products, making the economy more balanced and stable.
3. Increase in national income and GDP. Industrial output adds value to raw materials and raises total production, increasing per capita income and standards of living.
4. Provision of goods and reduction of imports. Local manufacture of consumer and capital goods reduces dependence on imports, saving foreign exchange and improving the balance of payments.
5. Earning of foreign exchange. Exporting manufactured (processed) goods earns more foreign exchange than exporting raw materials.
6. Development of infrastructure and technology. Industrial growth encourages the building of roads, power and communications and promotes the acquisition of modern skills and technology.
7. Growth of related sectors. Industries create linkages that stimulate agriculture (raw materials), commerce and services.

Examination reminder: tie each point to development (higher incomes, diversification, technology), not merely to production.

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Agriculture once dominated Nigeria's Gross Domestic Product and exports, but its share declined sharply, especially after the oil boom. The main reasons are:

• Discovery and dominance of crude oil: the oil boom shifted attention, labour and government revenue to petroleum, so oil rather than agriculture came to dominate GDP and exports.
• Rural-urban migration: young people left farming for the towns in search of oil-sector and white-collar jobs, leaving an ageing farm labour force.
• Use of crude, traditional methods: continued reliance on the hoe and cutlass and on rain-fed farming keeps output low.
• Poor access to finance and credit for farmers, limiting investment in inputs and machinery.
• Inadequate infrastructure: poor rural roads, storage and processing facilities cause heavy post-harvest losses.
• Neglect of agriculture by government in favour of oil, with fewer incentives and less funding.
• Land tenure problems that make it hard to acquire large, secure holdings.
• Pests, diseases and unfavourable weather that reduce yields, plus low and unstable prices for farm produce.
• Lack of modern inputs such as improved seeds, fertilizer and irrigation.

In relative terms, agriculture's share fell largely because the oil sector grew so fast, while at the same time agriculture itself remained low-yielding and neglected.

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(a) Cross elasticity of demand measures the responsiveness of the quantity demanded of one commodity to a change in the price of another commodity. It is given by \[E_c=\dfrac{\%\ \text{change in quantity demanded of good B}}{\%\ \text{change in price of good A}}.\] A positive value indicates substitutes, a negative value indicates complements, and a value near zero indicates unrelated goods.

(b) Reading the price change of the first commodity against the quantity change of its paired commodity:

Bread (price) and Yam (quantity): \(\%\Delta P=\dfrac{20-15}{15}\times100=33.3\%\); \(\%\Delta Q=\dfrac{200-150}{150}\times100=33.3\%\); \[E_c=\dfrac{33.3}{33.3}=+1.\] The positive sign shows the two are substitutes.

Beef (price) and Fish (quantity): \(\%\Delta P=\dfrac{40-25}{25}\times100=60\%\); \(\%\Delta Q=\dfrac{3{,}000-1{,}000}{1{,}000}\times100=200\%\); \[E_c=\dfrac{200}{60}=+3.33.\] The positive value shows the two are substitutes.

Butter (price) and Margarine (quantity): \(\%\Delta P=\dfrac{50-100}{100}\times100=-50\%\); \(\%\Delta Q=\dfrac{400-250}{250}\times100=60\%\); \[E_c=\dfrac{60}{-50}=-1.2.\] The negative sign shows the two behave as complements in this data.

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A country restricts international trade by using barriers such as tariffs, import quotas, embargoes and exchange controls. It does so to protect and manage its domestic economy rather than allow completely free trade. The main reasons are:

1. To protect infant industries. New, young industries cannot yet compete with established foreign firms, so restrictions shield them until they grow strong.
2. To reduce unemployment. By limiting imports, demand is directed to home-produced goods, keeping domestic factories working and protecting local jobs.
3. To correct a balance of payments deficit. Cutting imports reduces the outflow of foreign exchange and helps to close a deficit.
4. To prevent dumping. Restrictions stop foreign firms from selling goods below cost to destroy local competitors.
5. To raise government revenue. Import and export duties (tariffs) are an important source of government income.
6. To improve national security and health. Governments restrict the import of dangerous, harmful or strategically sensitive goods (such as weapons or contaminated food).
7. To conserve foreign reserves and discourage the importation of luxury or non-essential goods.

Examination reminder: give the reason and a short justification for each; a bare list without explanation earns fewer marks.

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The barter system requires the double coincidence of wants, meaning that two people must each possess exactly what the other needs and want to exchange at the same time. Money removes this and other rigidities of barter, which is why it has largely replaced barter in modern transactions.

Five reasons why money replaced barter:

1. It provides a medium of exchange. Money is generally acceptable, so a person can sell goods for money and use that money to buy anything else, removing the need for a double coincidence of wants.
2. It serves as a measure (unit) of value. All goods and services can be priced in money, giving a common yardstick for comparing values that barter could not provide.
3. It is a store of value. Money can be saved and used later without losing much value, whereas many barter goods (such as yam or fish) are perishable and cannot be stored.
4. It acts as a standard for deferred (future) payments. Debts, loans and credit transactions can be fixed and settled in money over time, which is difficult under barter.
5. It is portable and divisible. Money is easy to carry and can be broken into smaller units, so small and large transactions are both possible, unlike indivisible barter goods such as a live cow.

Examination reminder: the strongest single reason is the removal of the double coincidence of wants; state it first and then link the remaining reasons to the four functions of money.

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(a) Production is any human activity, aided by the factors of production, that creates or adds to the value of goods and services in order to satisfy human wants. It covers not only making goods but also the services that move goods to consumers and provide direct satisfaction. Production is complete only when the good or service reaches the final consumer.

(b) Types of production:

• (i) Primary production: the extractive stage, which obtains raw materials directly from nature. Examples: farming, fishing, mining, lumbering and hunting.
• (ii) Secondary production: the manufacturing and construction stage, which processes the raw materials from primary production into finished or semi-finished goods. Examples: making garri from cassava, refining crude oil, building houses and assembling cars.
• (iii) Tertiary production: the provision of services rather than goods. It includes commercial services that aid trade (transport, banking, insurance, wholesaling and retailing) and direct/personal services (teaching, nursing, the work of lawyers and hairdressers).

The three stages are linked: primary supplies raw materials to secondary, and tertiary provides the services that distribute the goods and support the whole process.

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(a) The labour force is the total number of people who are of working age (for example 15 to 64 years) and are able and willing to work, whether they are actually employed or unemployed but seeking work. It excludes children, the aged, students, housewives not seeking work, and those unable or unwilling to work.

(b) Four factors affecting the size of the labour force:

• Size of the total population: a larger population, other things being equal, provides a larger pool from which the labour force is drawn.
• Age distribution of the population: a population with a high proportion of people of working age has a larger labour force than one dominated by children or the aged.
• The official working-age limits (retirement and entry age): a lower entry age and a higher retirement age enlarge the labour force, while the reverse reduces it.
• Attitude to work, especially of women: where more women take up paid employment and social attitudes favour work, the labour force is larger.
• Length of schooling and training: long years spent in education delay entry and reduce the current labour force.
• Migration: immigration of workers increases, and emigration reduces, the size of the labour force.

In short, the labour force depends on how many people fall within the working age and how many of them are willing and available to work.

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Public corporations (state-owned enterprises) are established by government for economic, social and strategic reasons. Five reasons include:

• To provide essential services: to supply basic utilities such as water, electricity and public transport that citizens need but that private firms may not provide adequately.
• To prevent private monopoly and exploitation: to keep control of natural monopolies in public hands so that consumers are not overcharged.
• To provide services that require huge capital: to undertake projects such as railways, ports and power stations that are too costly for private investors.
• To promote even development: to locate industries and services in areas a profit-seeking firm would avoid, reducing regional inequality.
• For strategic and security reasons: to control industries vital to national defence and the economy, such as defence production and refineries.
• To create employment and to earn revenue for the government.

The underlying reasoning is that some goods and services are too important, too costly or too easily abused to be left entirely to private profit-seeking firms, so the state provides them through public corporations.

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Each sector angle is \(\dfrac{\text{sector amount}}{\text{total}}\times360^\circ\). The total allocation is \(30+25+15+10+20=100\) million naira.

The angles sum to \(108+90+54+36+72=360^\circ\), so the pie chart is drawn with these five sectors.