WAEC SSCE - Economics - 2016 (Essay)
Question 1 Report
(a) Define:
(i) Building Society (2marks);
(ii) Central Bank. (3marks)
(b) Highlight any five instruments of the Central Bank in regulating the supply of money. (15marks).
(a)(i) Building society is a financial institution that accepts deposits and savings from members and grants them loans, chiefly mortgages, to build, buy or improve houses.
(a)(ii) Central bank is the apex financial institution of a country that issues the national currency, acts as banker to the government and to commercial banks, and controls and regulates the money supply and banking system.
(b) Five instruments the central bank uses to regulate the supply of money
- Open-market operations: buying government securities to increase the money supply, or selling them to reduce it.
- Bank (discount) rate: raising the rate at which it lends to banks makes borrowing dearer and contracts credit; lowering it expands credit.
- Cash-reserve ratio: raising the proportion of deposits banks must hold as reserves reduces their lending power, and vice versa.
- Special deposits: calling for extra frozen deposits from banks removes cash and curtails lending.
- Moral suasion and selective credit control: persuading or directing banks to expand or restrict lending to particular sectors.
(The liquidity ratio requirement is another acceptable instrument.)
Answer Details
(a)(i) Building society is a financial institution that accepts deposits and savings from members and grants them loans, chiefly mortgages, to build, buy or improve houses.
(a)(ii) Central bank is the apex financial institution of a country that issues the national currency, acts as banker to the government and to commercial banks, and controls and regulates the money supply and banking system.
(b) Five instruments the central bank uses to regulate the supply of money
- Open-market operations: buying government securities to increase the money supply, or selling them to reduce it.
- Bank (discount) rate: raising the rate at which it lends to banks makes borrowing dearer and contracts credit; lowering it expands credit.
- Cash-reserve ratio: raising the proportion of deposits banks must hold as reserves reduces their lending power, and vice versa.
- Special deposits: calling for extra frozen deposits from banks removes cash and curtails lending.
- Moral suasion and selective credit control: persuading or directing banks to expand or restrict lending to particular sectors.
(The liquidity ratio requirement is another acceptable instrument.)
Question 2 Report
(a) What is production possibility curve? (3marks)
(b) Draw a production possibility curve and indicate any:
(i) Point P, where resources are fully utilized;
(ii) Point U, where resources are under utilized;
(iii) Point X, where production is not feasible. (8 marks)
(c) Explain any two factors that can make production at Point X feasible. (6marks).
(d) Why is the production possibility curve negatively sloped? (3marks)
(a) A production possibility curve (PPC) is a graph which shows the maximum possible combinations of two goods that an economy can produce with its given resources and level of technology, within a given period.
(b) The production possibility curve is illustrated below.
- P lies on the PPC. At this point, available resources are fully and efficiently utilized.
- U lies inside the PPC. At this point, resources are under-utilized or inefficiently used.
- X lies outside the PPC. This output combination is not feasible with the present resources and technology.
(c) Production at point X can become feasible through any two of the following:
- Increase in productive resources: An increase in the quantity or quality of land, labour, capital and entrepreneurship will increase the productive capacity of the economy. The PPC will shift outward, making point X attainable.
- Technological advancement: Improved methods of production, research and development, and better machines increase output from the same quantity of resources. This shifts the PPC outward and may make X feasible.
- Human capital development: Training and retraining workers improve their skills, efficiency and productivity. More goods can then be produced, causing an outward shift of the PPC.
(d) The PPC slopes negatively because resources are limited. To produce more of one commodity, some resources must be transferred from the production of the other commodity. Therefore, more of one good can only be obtained by sacrificing some quantity of the other good, which is the opportunity cost.
Answer Details
(a) A production possibility curve (PPC) is a graph which shows the maximum possible combinations of two goods that an economy can produce with its given resources and level of technology, within a given period.
(b) The production possibility curve is illustrated below.
- P lies on the PPC. At this point, available resources are fully and efficiently utilized.
- U lies inside the PPC. At this point, resources are under-utilized or inefficiently used.
- X lies outside the PPC. This output combination is not feasible with the present resources and technology.
(c) Production at point X can become feasible through any two of the following:
- Increase in productive resources: An increase in the quantity or quality of land, labour, capital and entrepreneurship will increase the productive capacity of the economy. The PPC will shift outward, making point X attainable.
- Technological advancement: Improved methods of production, research and development, and better machines increase output from the same quantity of resources. This shifts the PPC outward and may make X feasible.
- Human capital development: Training and retraining workers improve their skills, efficiency and productivity. More goods can then be produced, causing an outward shift of the PPC.
(d) The PPC slopes negatively because resources are limited. To produce more of one commodity, some resources must be transferred from the production of the other commodity. Therefore, more of one good can only be obtained by sacrificing some quantity of the other good, which is the opportunity cost.
Question 3 Report
The following data shows the budget of hypothetical country in2006. Study data and answer the questions that follow:
| Revenue | [$ million] |
| Company tax | 240 |
| Workers' income tax | 160 |
| Excise duties | 80 |
| Taxes on exports | 100 |
| Value added tax | 150 |
| Import duties | 90 |
| Non-tax revenue | 40 |
| Expenditure | [$ million] |
| Construction of roads | 100 |
| Building of schools | 120 |
| Payment of workers' salaries | 150 |
| Government administration | 200 |
| Maintenance of health facilities | 220 |
| Extension of electricity to rural areas | 180 |
| Maintenance of official vechicles | 70 |
(a) How many revenue was realised from:
(i) direct taxes;(3 marks) ,(ii) indirect taxes (3 marks)
(b)Calculate the total:
(i) recurrent expenditure (3 marks) ,(ii) capital expenditure (3 marks)
(c) What pencentage of total revenue was collected as indirect taxe? (3 marks)
(d) State two examples of non-tax revenue (2 marks)
(e) What was the budget surplus or deficit? Explain your answer. (3 marks).
(a) Tax revenue by type
- (i) Direct taxes = Company tax + Workers' income tax \(= 240 + 160 = \$400\) million.
- (ii) Indirect taxes = Excise duties + Taxes on exports + VAT + Import duties \(= 80 + 100 + 150 + 90 = \$420\) million.
(b) Expenditure by type
- (i) Recurrent expenditure = Salaries + Administration + Maintenance of health facilities + Maintenance of vehicles \(= 150 + 200 + 220 + 70 = \$640\) million.
- (ii) Capital expenditure = Construction of roads + Building of schools + Extension of electricity \(= 100 + 120 + 180 = \$400\) million.
(c) Indirect tax as a percentage of total revenue
Total revenue \(= 240 + 160 + 80 + 100 + 150 + 90 + 40 = \$860\) million.
\[\frac{420}{860}\times 100 = 48.84\%\]
(d) Two examples of non-tax revenue: fees and licences; fines and penalties (also rents/royalties, grants and aids, or profits of public enterprises).
(e) Budget surplus or deficit
Total revenue \(= \$860\) million; total expenditure \(= 640 + 400 = \$1040\) million.
\[860 - 1040 = -\$180\ \text{million}\]
Since planned expenditure exceeds expected revenue, it is a deficit budget of \$180 million.
Answer Details
(a) Tax revenue by type
- (i) Direct taxes = Company tax + Workers' income tax \(= 240 + 160 = \$400\) million.
- (ii) Indirect taxes = Excise duties + Taxes on exports + VAT + Import duties \(= 80 + 100 + 150 + 90 = \$420\) million.
(b) Expenditure by type
- (i) Recurrent expenditure = Salaries + Administration + Maintenance of health facilities + Maintenance of vehicles \(= 150 + 200 + 220 + 70 = \$640\) million.
- (ii) Capital expenditure = Construction of roads + Building of schools + Extension of electricity \(= 100 + 120 + 180 = \$400\) million.
(c) Indirect tax as a percentage of total revenue
Total revenue \(= 240 + 160 + 80 + 100 + 150 + 90 + 40 = \$860\) million.
\[\frac{420}{860}\times 100 = 48.84\%\]
(d) Two examples of non-tax revenue: fees and licences; fines and penalties (also rents/royalties, grants and aids, or profits of public enterprises).
(e) Budget surplus or deficit
Total revenue \(= \$860\) million; total expenditure \(= 640 + 400 = \$1040\) million.
\[860 - 1040 = -\$180\ \text{million}\]
Since planned expenditure exceeds expected revenue, it is a deficit budget of \$180 million.
Question 4 Report
The utility schedule of a consumer for a brand of ice cream is shown in the table below. Use the information to answer the questions that follow:
| Units Consumed (Q) | Total Utility (TU) | Marginal Utility (MU) |
| 0 | 0 | - |
| 1 | 10 | 10 |
| 2 | 19 | R |
| 3 | P | 6 |
| 4 | 30 | 5 |
| 5 | 31 | S |
| 6 | Q | 0 |
| 7 | 29 | -2 |
(a) Calculate the values of P,Q,and S. (8 marks).
(b) Given that the jprice of ice cream is $ 1.00 per unit, at what level of consumption is the consumer in equilibrium? Explain your answer. (3 marks).
(c) Use a graph sheet, draw the marginal utility curve.(3 marks).
(d) State the law of diminishing marginal utility. (3 marks).
(a) Calculation of the missing values
Marginal utility is the change in total utility:
\[MU=\frac{\Delta TU}{\Delta Q}\]
For the third unit:
\[P=TU_3=TU_2+MU_3=19+6=25\]
For the sixth unit:
\[Q=TU_6=TU_5+MU_6=31+0=31\]
For the fifth unit:
\[S=MU_5=TU_5-TU_4=31-30=1\]
Also, the marginal utility of the second unit is:
\[R=MU_2=TU_2-TU_1=19-10=9\]
| Units consumed, \(Q\) | Total utility, \(TU\) | Marginal utility, \(MU\) |
|---|---|---|
| 0 | 0 | – |
| 1 | 10 | 10 |
| 2 | 19 | 9 |
| 3 | 25 | 6 |
| 4 | 30 | 5 |
| 5 | 31 | 1 |
| 6 | 31 | 0 |
| 7 | 29 | −2 |
Therefore, \(P=25\), \(Q=31\), and \(S=1\).
(b) Consumer equilibrium
The consumer is in equilibrium at the fifth unit of ice cream. At this level, marginal utility equals price:
\[MU_5=\$1.00=P\]
The sixth unit has \(MU=0\), which is less than the price. Therefore, it will not be worthwhile to consume beyond five units.
(c) Marginal utility curve
Plot the points \((1,10)\), \((2,9)\), \((3,6)\), \((4,5)\), \((5,1)\), \((6,0)\), and \((7,-2)\), and join them with a smooth downward-sloping curve.
(d) Law of diminishing marginal utility
The law of diminishing marginal utility states that, other things being equal, as a consumer consumes successive units of a commodity, the satisfaction obtained from each additional unit decreases.
Answer Details
(a) Calculation of the missing values
Marginal utility is the change in total utility:
\[MU=\frac{\Delta TU}{\Delta Q}\]
For the third unit:
\[P=TU_3=TU_2+MU_3=19+6=25\]
For the sixth unit:
\[Q=TU_6=TU_5+MU_6=31+0=31\]
For the fifth unit:
\[S=MU_5=TU_5-TU_4=31-30=1\]
Also, the marginal utility of the second unit is:
\[R=MU_2=TU_2-TU_1=19-10=9\]
| Units consumed, \(Q\) | Total utility, \(TU\) | Marginal utility, \(MU\) |
|---|---|---|
| 0 | 0 | – |
| 1 | 10 | 10 |
| 2 | 19 | 9 |
| 3 | 25 | 6 |
| 4 | 30 | 5 |
| 5 | 31 | 1 |
| 6 | 31 | 0 |
| 7 | 29 | −2 |
Therefore, \(P=25\), \(Q=31\), and \(S=1\).
(b) Consumer equilibrium
The consumer is in equilibrium at the fifth unit of ice cream. At this level, marginal utility equals price:
\[MU_5=\$1.00=P\]
The sixth unit has \(MU=0\), which is less than the price. Therefore, it will not be worthwhile to consume beyond five units.
(c) Marginal utility curve
Plot the points \((1,10)\), \((2,9)\), \((3,6)\), \((4,5)\), \((5,1)\), \((6,0)\), and \((7,-2)\), and join them with a smooth downward-sloping curve.
(d) Law of diminishing marginal utility
The law of diminishing marginal utility states that, other things being equal, as a consumer consumes successive units of a commodity, the satisfaction obtained from each additional unit decreases.
Question 5 Report
(a) What is price elasticity of supply?(2marks)
(b) Differentiate between joint supply and cometitive supply.(6marks)
(c) Explain any four determinants of elasticity of supply. (12marks)
(a) Price elasticity of supply is the degree of responsiveness of the quantity supplied of a commodity to a change in its price. It is measured as
\[ E_s = \frac{\%\ \text{change in quantity supplied}}{\%\ \text{change in price}} \](b) Joint supply versus competitive supply
- Joint supply occurs when two or more goods are produced together from a single production process, so producing more of one automatically yields more of the other. Example: rearing cattle gives both beef and hides.
- Competitive (rival) supply occurs when goods compete for the same productive resources, so producing more of one means less of the other can be produced. Example: using a piece of land for maize leaves less land for yam.
(c) Four determinants of elasticity of supply
- Time period: supply is more elastic in the long run, when producers can adjust all factors, than in the short run.
- Availability of spare capacity and factors of production: if idle resources and inputs are readily available, output can be raised quickly, making supply elastic.
- Ease and cost of storing the good: goods that can be stored cheaply have more elastic supply, since stocks can be released when price rises.
- Gestation (production) period: goods that take a long time to produce, such as tree crops, have inelastic supply because output cannot respond quickly to price.
Answer Details
(a) Price elasticity of supply is the degree of responsiveness of the quantity supplied of a commodity to a change in its price. It is measured as
\[ E_s = \frac{\%\ \text{change in quantity supplied}}{\%\ \text{change in price}} \](b) Joint supply versus competitive supply
- Joint supply occurs when two or more goods are produced together from a single production process, so producing more of one automatically yields more of the other. Example: rearing cattle gives both beef and hides.
- Competitive (rival) supply occurs when goods compete for the same productive resources, so producing more of one means less of the other can be produced. Example: using a piece of land for maize leaves less land for yam.
(c) Four determinants of elasticity of supply
- Time period: supply is more elastic in the long run, when producers can adjust all factors, than in the short run.
- Availability of spare capacity and factors of production: if idle resources and inputs are readily available, output can be raised quickly, making supply elastic.
- Ease and cost of storing the good: goods that can be stored cheaply have more elastic supply, since stocks can be released when price rises.
- Gestation (production) period: goods that take a long time to produce, such as tree crops, have inelastic supply because output cannot respond quickly to price.
Question 6 Report
(a) What is:
(i) peasant farming? (2marks)
(ii) Co-operative farming?(3marks)
(b) Identify any five ways through which government can assist peasant farmers. (15 marks).
(a)(i) Peasant farming is small-scale farming carried on by an individual or family, using simple tools and mainly family labour, on a small piece of land, chiefly to produce food for the family's own consumption (subsistence), with only a small surplus sold.
(a)(ii) Co-operative farming is a form of farming in which a group of farmers voluntarily pool their resources (land, labour, capital and equipment), work together, and share the costs, risks and proceeds of production.
(b) Five ways government can assist peasant farmers
- Provision of credit and loans at low interest through agricultural banks, so farmers can buy inputs and expand.
- Subsidies on farm inputs such as improved seeds, fertilizers, agro-chemicals and machinery, to lower production costs.
- Agricultural extension services and education to teach modern farming methods and improve yields.
- Provision of infrastructure such as feeder roads, irrigation, storage and electricity to reduce waste and ease the movement of produce.
- Guaranteed minimum prices and organised marketing (for example marketing boards) so that farmers have assured, stable incomes.
(Other valid points: research into improved crop and animal varieties, and land reform to give farmers secure access to land.)
Answer Details
(a)(i) Peasant farming is small-scale farming carried on by an individual or family, using simple tools and mainly family labour, on a small piece of land, chiefly to produce food for the family's own consumption (subsistence), with only a small surplus sold.
(a)(ii) Co-operative farming is a form of farming in which a group of farmers voluntarily pool their resources (land, labour, capital and equipment), work together, and share the costs, risks and proceeds of production.
(b) Five ways government can assist peasant farmers
- Provision of credit and loans at low interest through agricultural banks, so farmers can buy inputs and expand.
- Subsidies on farm inputs such as improved seeds, fertilizers, agro-chemicals and machinery, to lower production costs.
- Agricultural extension services and education to teach modern farming methods and improve yields.
- Provision of infrastructure such as feeder roads, irrigation, storage and electricity to reduce waste and ease the movement of produce.
- Guaranteed minimum prices and organised marketing (for example marketing boards) so that farmers have assured, stable incomes.
(Other valid points: research into improved crop and animal varieties, and land reform to give farmers secure access to land.)
Question 7 Report
Explain the following National Income concepts:
(a) Gross Domestic Product (GDP; (4 marks)
(b) Gross National Product (GNP; (4 marks)
(c) Cost of living; (4 marks)
(d) Per Capital income; (4 marks)
(e) Standard of living; (4 marks)
(a) Gross Domestic Product (GDP) is the total money value of all final goods and services produced within a country's geographical boundaries in a given year, whether produced by nationals or foreigners. It measures domestic output only.
(b) Gross National Product (GNP) is the total money value of all final goods and services produced by the nationals of a country in a year, wherever they are located. It equals GDP plus net factor income from abroad:
\[ GNP = GDP + \text{(income earned by nationals abroad} - \text{income earned by foreigners at home)} \](c) Cost of living is the amount of money a person or household needs to buy the basic goods and services required to maintain a given standard of living over a period. Changes in it are measured by a price (consumer) index; a rise in the price index means a higher cost of living.
(d) Per capita income is the average income per head of the population. It is found by dividing national income by the total population:
\[ \text{Per capita income} = \frac{\text{National income}}{\text{Total population}} \](e) Standard of living is the level of material welfare and quality of life enjoyed by the people of a country, shown by the quantity and quality of goods and services each person consumes on average, together with factors such as health, education and leisure. A higher real per capita income generally indicates a higher standard of living.
Answer Details
(a) Gross Domestic Product (GDP) is the total money value of all final goods and services produced within a country's geographical boundaries in a given year, whether produced by nationals or foreigners. It measures domestic output only.
(b) Gross National Product (GNP) is the total money value of all final goods and services produced by the nationals of a country in a year, wherever they are located. It equals GDP plus net factor income from abroad:
\[ GNP = GDP + \text{(income earned by nationals abroad} - \text{income earned by foreigners at home)} \](c) Cost of living is the amount of money a person or household needs to buy the basic goods and services required to maintain a given standard of living over a period. Changes in it are measured by a price (consumer) index; a rise in the price index means a higher cost of living.
(d) Per capita income is the average income per head of the population. It is found by dividing national income by the total population:
\[ \text{Per capita income} = \frac{\text{National income}}{\text{Total population}} \](e) Standard of living is the level of material welfare and quality of life enjoyed by the people of a country, shown by the quantity and quality of goods and services each person consumes on average, together with factors such as health, education and leisure. A higher real per capita income generally indicates a higher standard of living.
Question 8 Report
(a) Who is a discriminating monopolist. (2 marks)
(b) Explain any four conditions necessary for a monopolist to practise price discrimination. (12 marks).
(c) Explain any two benefits enjoyed by a discriminating monopolist. (6 marks)
(a) A discriminating monopolist is a sole producer who charges different prices to different consumers (or in different markets) for the same product, where the price differences are not due to differences in the cost of production.
(b) Four conditions necessary for price discrimination
- Monopoly power: the firm must be a price maker with control over supply, otherwise competitors would undercut the higher price.
- Separable markets: the seller must be able to divide buyers into distinct markets or groups (for example by age, location or time of use).
- Different price elasticities of demand: demand must be more elastic in one market than another, so a higher price is charged where demand is inelastic and a lower price where it is elastic.
- No resale (no arbitrage): buyers in the cheap market must be unable to resell to buyers in the dear market, otherwise the price gap would collapse.
(c) Two benefits enjoyed by a discriminating monopolist
- Higher total revenue and profit: by charging each market according to what it will bear, the firm captures more of the consumers' surplus than a single price would allow.
- Ability to serve additional markets: charging a lower price in the elastic (poorer) market lets the firm sell to customers who would otherwise buy nothing, spreading fixed costs and possibly enjoying economies of scale.
Answer Details
(a) A discriminating monopolist is a sole producer who charges different prices to different consumers (or in different markets) for the same product, where the price differences are not due to differences in the cost of production.
(b) Four conditions necessary for price discrimination
- Monopoly power: the firm must be a price maker with control over supply, otherwise competitors would undercut the higher price.
- Separable markets: the seller must be able to divide buyers into distinct markets or groups (for example by age, location or time of use).
- Different price elasticities of demand: demand must be more elastic in one market than another, so a higher price is charged where demand is inelastic and a lower price where it is elastic.
- No resale (no arbitrage): buyers in the cheap market must be unable to resell to buyers in the dear market, otherwise the price gap would collapse.
(c) Two benefits enjoyed by a discriminating monopolist
- Higher total revenue and profit: by charging each market according to what it will bear, the firm captures more of the consumers' surplus than a single price would allow.
- Ability to serve additional markets: charging a lower price in the elastic (poorer) market lets the firm sell to customers who would otherwise buy nothing, spreading fixed costs and possibly enjoying economies of scale.
