WAEC SSCE - Economics - 1988 (Essay)

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(a) Demand-pull inflation. Demand-pull inflation is a persistent rise in the general price level caused by aggregate (total) demand for goods and services growing faster than the economy's ability to supply them. Because "too much money chases too few goods," the excess demand pulls prices up. It arises from factors such as rising government spending, increased money supply, higher consumer spending, or export booms while output is near full capacity.

(b) Why price control is not suitable for checking demand-pull inflation.

• It attacks the symptom, not the cause. The root problem is excess demand relative to supply; fixing maximum prices does nothing to reduce that excess demand.
• It creates shortages. A price ceiling set below the equilibrium price leaves quantity demanded greater than quantity supplied, so goods disappear from the shelves.
• It breeds a black market. Scarce goods are diverted and sold illegally at prices even higher than before, so the true cost to consumers rises.
• It discourages production. Controlled prices reduce producers' profit incentive, cutting supply further and worsening the underlying imbalance.
• It is difficult and costly to enforce across many goods, leading to hoarding, rationing, and corruption.

The appropriate remedies instead reduce aggregate demand: contractionary monetary policy (raising interest rates, reducing the money supply) and contractionary fiscal policy (cutting government spending or raising taxes).

Examination takeaway. A correct policy must address the cause of the inflation; since demand-pull inflation comes from excess demand, only demand-reducing (deflationary) policies are appropriate, not price fixing.

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(a) Malthus's views on population. Thomas Malthus, in his Essay on the Principle of Population, argued that:

• Population, if unchecked, tends to grow in a geometric progression (1, 2, 4, 8, 16...), that is, it doubles over regular periods.
• The food (means of subsistence) supply can at best grow only in an arithmetic progression (1, 2, 3, 4, 5...).
• Therefore population tends to outstrip the food supply, leading to a shortage of food and a falling standard of living.
• This imbalance is corrected by checks. Positive (natural) checks such as famine, disease, and war raise the death rate, while preventive (moral) checks such as late marriage and moral restraint lower the birth rate.

(b) Validity of these views for Nigeria today.

Points that support Malthus:

• Nigeria has a high population growth rate that has at times outpaced growth in food production, contributing to food shortages, importation of food, and unemployment.
• Poverty, pressure on land, and evidence of positive checks such as disease and communal conflict can still be observed.

Points that weaken Malthus:

• Modern improvements in agricultural technology (fertilisers, high-yield seeds, irrigation, mechanisation) have raised food output faster than Malthus assumed possible, so food need not grow only arithmetically.
• Family planning and education provide preventive checks Malthus underrated, helping to slow birth rates.
• Nigeria can import food and export other goods, and can develop industry, so it is not limited to its own farmland.
• A larger population also provides a bigger labour force and market that can aid development.

Conclusion. Malthus's warning about the danger of unchecked population growth outstripping resources is partly valid for Nigeria, but his theory is not fully borne out because technology, trade, and family planning have loosened the fixed relationship he assumed between population and food.

Examination takeaway. For a "how valid" question, give a balanced answer: state points for and against, then reach a reasoned conclusion rather than accepting or rejecting the theory outright.

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(a) Objectives of OPEC (Organisation of the Petroleum Exporting Countries).

• To co-ordinate and unify the petroleum policies of member countries.
• To stabilise oil prices in the international market and avoid harmful fluctuations.
• To secure a fair and stable income for the producing (member) nations.
• To ensure a regular and efficient supply of petroleum to consuming nations.
• To secure a fair return on capital for those investing in the petroleum industry.
• To protect members from exploitation by the large international oil companies and give them collective bargaining strength.

(b) Problems of OPEC.

• Disagreement over production quotas. Members dispute how much each may produce, weakening price control.
• Cheating and over-production. Some members exceed their quotas and sell secretly, undermining agreed prices.
• Competition from non-OPEC producers. Oil from non-member countries reduces OPEC's control of the market.
• Political differences and conflict among members (including wars) make co-operation difficult.
• Availability of substitutes. Development of other energy sources reduces demand for OPEC oil.
• Differences in economic needs. Members with large populations want higher output and revenue, conflicting with price-support cuts.

(c) Remedies adopted to curtail the problems.

• Fixing and enforcing production quotas for each member to control total supply.
• Regular meetings of members to agree and review output and prices.
• Monitoring of members' output to discourage cheating.
• Adjusting prices and production in response to market conditions to defend price levels.
• Encouraging co-operation and dialogue to resolve political differences and present a united front.

Examination takeaway. Match the remedies to the problems: quotas and monitoring answer over-production, while regular meetings and dialogue answer disagreement, so the three parts of the answer should read as a connected chain.

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Concept. Industrialisation is the process of building up manufacturing and processing industries in an economy. Governments in developing countries deliberately encourage it to create jobs, add value to raw materials, diversify the economy, and reduce dependence on imports.

Measures the government has taken to encourage industrialisation in Nigeria.

• Provision of infrastructure. Building roads, ports, electricity, and water supply to lower the cost of doing business and support factories.
• Establishment of industrial estates and free trade zones. Setting aside serviced land and export-processing zones where industries can operate with facilities and incentives.
• Provision of finance. Setting up development banks and industrial funds (for example the Bank of Industry) to give loans to manufacturers.
• Tax incentives. Granting tax holidays, tariff concessions, and pioneer status to new and priority industries.
• Protection of infant industries. Imposing import tariffs, quotas, or bans on competing foreign goods to shield local firms.
• Import-substitution and local-content policies. Encouraging local production of goods formerly imported and requiring the use of local raw materials.
• Manpower development. Establishing technical colleges and training institutions to supply skilled labour.
• Indigenisation and privatisation policies. Transferring ownership to Nigerians and improving efficiency of state enterprises.

Examination takeaway. Group the measures into fiscal (taxes and incentives), monetary/financial (loans and development banks), and protective/infrastructural policies; explaining how each measure promotes industry earns more than a bare list.

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Concept. National income figures (such as GDP, GNP/GNI, and per capita income) are statistical estimates of the total value of goods and services an economy produces. Once compiled, they serve several important purposes.

Uses of national income figures.

• Measuring economic performance and growth. Comparing national income from year to year shows whether the economy is expanding, stagnant, or contracting.
• Indicating the standard of living. Per capita income (national income divided by population) gives a rough measure of average welfare in the country.
• International comparison. Figures allow the wealth and living standards of different countries to be compared.
• Aid to economic planning. Government uses the data to allocate resources, set targets, and prepare development plans and budgets.
• Showing the structure of the economy. Sector contributions (agriculture, industry, services) reveal on what the economy depends.
• Measuring income distribution. The figures help reveal how income is shared among groups and regions, guiding policies to reduce inequality.
• Assessing the effect of government policy. Changes in the figures show whether fiscal and monetary policies are achieving their aims.
• Basis for international obligations. Contributions to and grants from international bodies are often based on national income.

Note on limitations. The figures should be used with care because they ignore non-market activities, do not show income distribution directly, and are affected by price changes; real (not just money) figures and per capita measures give a truer picture.

Examination takeaway. Where the question simply says "explain the uses," give several distinct uses, each named and briefly explained, rather than one use discussed at length.

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(a) Liquidity ratio. The liquidity ratio (cash ratio) is the proportion of a commercial bank's total deposits that it keeps in liquid (readily available) form, that is, in cash and near-cash assets, rather than lending out. It is set to ensure the bank can always meet customers' withdrawal demands.

\[ \text{Liquidity ratio} = \frac{\text{Liquid (cash) assets}}{\text{Total deposits}}\times 100 \]

The central bank uses the required liquidity ratio as a tool of monetary policy: raising it reduces the funds banks can lend (tightening credit), while lowering it expands lending.

(b) Fixed deposits. A fixed (time) deposit is money placed with a bank for a fixed, agreed period (for example three or six months) that cannot normally be withdrawn until the period ends. Because the bank can rely on these funds, it pays a higher rate of interest than on current or savings accounts, and the longer the term, the higher the interest. Early withdrawal usually attracts a penalty or loss of interest.

(c) Money market. The money market is the market for short-term funds and financial instruments, that is, loans and securities that mature in a short time (generally under one year). Its instruments include treasury bills, certificates of deposit, commercial bills, and call money. The main participants are commercial banks, the central bank, discount houses, and large firms. It contrasts with the capital market, which deals in long-term funds such as shares and long-term bonds.

Examination takeaway. Keep the time dimension clear: the money market handles short-term finance and fixed deposits are time deposits, while the liquidity ratio is about keeping enough cash to meet withdrawals.

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Concept. Price elasticity of demand (PED) measures how responsive quantity demanded is to a change in price. It is the percentage change in quantity demanded divided by the percentage change in price.

Given: Price rises from N5.00 (January) to N7.00 (February); quantity bought falls from 20 kg to 16 kg.

(a)(i) Percentage change in quantity bought.

\[ \%\Delta Q = \frac{16 - 20}{20}\times 100 = \frac{-4}{20}\times 100 = -20\% \]

(a)(ii) Percentage change in price.

\[ \%\Delta P = \frac{7 - 5}{5}\times 100 = \frac{2}{5}\times 100 = +40\% \]

(a)(iii) Coefficient of price elasticity of demand.

\[ e = \frac{\%\Delta Q}{\%\Delta P} = \frac{-20}{40} = -0.5 \]

Ignoring the negative sign (which merely reflects the inverse law of demand), the coefficient is 0.5.

(b)(i) Since the coefficient is less than 1, demand is inelastic.

(b)(ii) How we know. The proportionate change in quantity demanded (20%) is smaller than the proportionate change in price (40%). When the percentage change in quantity is less than the percentage change in price, giving a coefficient below 1, demand is price-inelastic: buyers are relatively unresponsive to the price change.

Examination takeaway. Always compare the two percentages: quantity changing by less than price means inelastic (e < 1); by more than price means elastic (e > 1); and the minus sign only signals the normal downward-sloping demand relationship.

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Concept. West African countries trade far more with Europe and America than with one another. The pattern is largely a legacy of colonial economic relationships and the structure of their economies.

Reasons why West African trade is directed to Europe and America rather than within Africa.

• Colonial ties. Historical links established under colonial rule created lasting trading relationships, currencies, and preferences oriented toward the former colonial powers.
• Similar products among West African states. Neighbouring countries produce similar primary goods (cocoa, groundnuts, timber, oil), so they compete rather than complement each other and have little to exchange.
• Demand for primary products abroad. Europe and America have large industries that need the raw materials and agricultural produce West Africa exports.
• Need for manufactured goods. West Africa lacks a strong industrial base and must import machinery, vehicles, and finished goods that only the developed economies produce.
• Poor transport links within the region. Roads, railways, and shipping lines were built to move goods to the coast for export overseas, not between African states, so intra-African trade is difficult.
• Currency and payment differences. Different, sometimes non-convertible currencies make trade between West African states harder than trade with hard-currency areas.
• Better credit, shipping, and marketing facilities exist for trade with Europe and America.
• Trade agreements and aid (for example associations with the European market) tie the region's trade to those partners.

Examination takeaway. Organise the reasons around structure (similar exports, need for manufactures) and history/infrastructure (colonial ties, transport, currency); this shows the examiner you understand both the economic and the historical causes.

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Concept. Agriculture is the cultivation of crops and rearing of animals. In most West African economies it is the largest sector, and it plays several vital roles in national development.

Roles of agriculture in the economy.

• Provision of food. Agriculture feeds the population, ensuring food security and reducing dependence on imported food.
• Employment. It provides work and income for a large proportion of the population, especially in rural areas.
• Source of raw materials. It supplies inputs (cotton, palm oil, cocoa, hides) to agro-based industries, promoting industrialisation.
• Source of foreign exchange. Exports of cash crops earn foreign currency used to import capital goods.
• Source of government revenue. Taxes, export duties, and marketing-board earnings from agriculture add to public funds.
• Provision of capital for development. Savings and surpluses generated in agriculture can be invested in other sectors.
• Market for industrial goods. Farmers buy tools, fertilisers, and consumer goods, creating demand that supports industry.
• Contribution to national income (GDP). Agriculture accounts for a large share of total output.

Examination takeaway. Present each role as a distinct point with a short explanation; grouping them (food, employment, income, foreign exchange, raw materials, revenue) helps you produce the number of well-developed points the marks require.