JAMB UTME - Economics - 1989

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For a purely competitive industry, the demand curve faced by individual firms is perfectly price elastic. This means that any change in price by the individual firm will result in a total loss of sales, as consumers will simply purchase from another firm offering the same product at a lower price. Therefore, a perfectly price elastic demand curve is a fundamental requirement for firms operating in a purely competitive industry, as it forces firms to accept the prevailing market price and operate efficiently in order to remain profitable.

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A tax is defined as regressive if the proportion of income paid as tax falls as income level increases. In other words, a regressive tax takes a larger percentage of income from low-income earners than from high-income earners. This means that the burden of the tax falls more heavily on those with lower incomes, as a larger portion of their income goes towards paying taxes. For example, a sales tax that applies the same tax rate to all goods and services regardless of their price, will take a larger proportion of a low-income earner's income than a high-income earner's income, since the low-income earner must spend a larger portion of their income on these goods and services. A progressive tax, on the other hand, is one where the proportion of income paid as tax increases as the income level increases. This means that higher-income earners pay a larger percentage of their income in taxes than lower-income earners, thus reducing the tax burden on low-income earners. A proportional tax is one where all income groups pay the same percentage of their income as tax. A fixed nominal amount of income tax for all income groups is a flat tax.

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The need to construct a scale of preference is necessitated by scarcity and the need for choice. Scarcity means that there are limited resources to fulfill unlimited wants and needs. Therefore, individuals must choose which wants and needs to satisfy and in what order of importance. This is where the scale of preference comes in, as it is a tool that helps individuals to rank their wants and needs in order of priority and to allocate their scarce resources towards fulfilling the most important ones first. Without a scale of preference, individuals may end up making poor choices that do not align with their priorities and lead to unsatisfactory outcomes. So, the option that best represents the need to construct a scale of preference is "scarcity and the need for choice."

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A sustained increase in the per capita income of a country over a period of time is called economic growth. Economic growth refers to the increase in the production of goods and services in an economy over a period of time. When this increase in production leads to an increase in the income of the people living in the country, it is referred to as an increase in per capita income. Economic growth is typically measured by changes in Gross Domestic Product (GDP), which is the total value of all goods and services produced in a country over a period of time. A sustained increase in GDP over several years indicates economic growth, and if this growth is higher than the population growth rate, then per capita income will also increase. Economic growth is often considered a key indicator of the economic health of a country, as it generally leads to an improvement in the standard of living, increased employment opportunities, and higher levels of consumption.

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The amount ₦4.08 million shown as balance in the table represents the balance on current accounts. The balance on current accounts is the difference between a country's total exports and total imports of goods and services over a period, usually a year. In this case, the table likely shows the current account balance for a country, where the balance is positive, indicating that the value of exports is greater than the value of imports.

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The group of people engaged in banking or insurance services are classified as tertiary producers. This is because the economy is divided into three sectors: primary, secondary, and tertiary. The primary sector involves the extraction and production of raw materials, such as farming and mining. The secondary sector involves the manufacturing and construction industries. The tertiary sector involves providing services, such as banking, insurance, healthcare, and education. Therefore, people who work in the banking or insurance services belong to the tertiary sector, also known as the service sector or service industry.

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The size of a business unit tends to be small if the activity involves the provision of direct services. This is because providing direct services often requires a personal touch and a high degree of customer interaction, which can be difficult to manage on a large scale. Additionally, service-based businesses often have lower capital requirements compared to those involved in mass production, making it easier for small businesses to enter the market. However, this may not be true for all service-based businesses, as some may require significant capital investment, such as those in the healthcare or transportation industries.

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A co-operative as a form of business organization differs from a partnership by having entrenched democratic control in the conduct of business. This means that members of a co-operative have an equal say in the decision-making process, regardless of the size of their investment in the co-operative. In a partnership, decisions are typically made based on the proportion of ownership held by each partner. Additionally, co-operatives often have established rules and regulations governing the activities of their members, which may not be present in a partnership. While co-operatives may have several sources of capital for business financing, the ability to issue preferred stocks to members is not a defining characteristic of a co-operative.

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The primary problem of Economics is the scarcity of productive resources relative to material needs. This means that there are limited resources such as land, labor, and capital, while there are unlimited wants and needs of people. Economics aims to study how societies allocate these scarce resources among competing needs and wants to maximize their benefits. It also aims to study how to efficiently produce goods and services to meet these needs and wants. Therefore, the central problem of economics is how to efficiently allocate scarce resources among alternative uses to satisfy human wants and needs.

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A balanced budget is defined as a condition of equality of planned receipts and planned expenditure. A balanced budget occurs when the government's planned receipts (e.g. taxes, fees, and other revenue sources) are equal to its planned expenditure (e.g. spending on public goods and services such as healthcare, education, defense, infrastructure, and other programs). This means that the government is not running a budget deficit (spending more than it takes in) or a budget surplus (taking in more than it spends). In other words, a balanced budget implies that the government is living within its means, as it is not borrowing or accumulating debt to finance its expenditure. This can be seen as a responsible fiscal policy that helps to promote economic stability and sustainability. However, achieving a balanced budget can be difficult, as it requires careful planning and management of government finances. In some cases, governments may need to adjust their revenue and expenditure policies to ensure that they can maintain a balanced budget over the long term.

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Commercial bank reserves at the Central Bank have the effect of controlling credit and money supply. Commercial banks are required to hold a certain percentage of their deposits as reserves at the Central Bank. The Central Bank has the power to adjust this reserve requirement, which affects the amount of money banks have available to lend out. By increasing the reserve requirement, the Central Bank can reduce the amount of money banks have available to lend, which in turn can help to control inflation by reducing the money supply. Similarly, by decreasing the reserve requirement, the Central Bank can increase the amount of money banks have available to lend, which can help to stimulate economic growth. Therefore, the reserves held by commercial banks at the Central Bank have a direct impact on the amount of money available in the economy, and therefore on credit and money supply.

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The merging of firms that are engaged in different stages of production and marketing is known as "vertical integration". In vertical integration, a company may acquire or merge with a supplier or distributor in order to gain more control over its supply chain and increase efficiency. By integrating vertically, a company can potentially reduce costs, improve quality control, and gain a competitive advantage over its rivals. This is different from "horizontal integration," which refers to the merging of firms that are in the same industry and at the same stage of production.

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The purpose of advertising in marketing is to shift the demand curve for the product to the right. In simpler terms, advertising aims to increase the number of people who want to buy a product or service. It does this by raising awareness about the product, highlighting its benefits and features, and creating a desire for it among potential customers. By increasing demand, advertising can ultimately lead to increased sales and revenue for the business. It does not change the quality of the product or raise production costs, nor does it directly affect the price of the product.

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Exchange controls refer to the measures that a country uses to regulate the flow of foreign exchange into and out of its economy. By implementing exchange controls, a country can limit its imports to the value of its exports in order to eliminate a balance of payments deficit. This means that the country will only allow imports that can be paid for with the amount of foreign exchange earned from its exports. This helps to balance the inflow and outflow of foreign exchange, and reduce the pressure on the country's foreign reserves. Therefore, the correct answer is: limiting her imports to its currency value of exports.

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The primary goal of development planning in Nigeria is to achieve a rapid increase in the welfare and standard of living of Nigerians. Development planning is a process of setting goals, strategies, and policies to achieve economic and social development. In Nigeria, the primary goal of development planning is to improve the welfare and standard of living of its citizens. This means that the focus is on improving access to basic necessities such as healthcare, education, and housing, as well as creating opportunities for employment and income generation. While increasing profitability of enterprises and increasing the level of gross domestic product may be important aspects of development, they are not the primary goal. The ultimate goal is to improve the well-being of the people in the country. Becoming a super-power is not a stated goal of development planning in Nigeria. However, achieving rapid economic and social development could help to strengthen Nigeria's position in the global community over time.

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In the given diagram, when the minimum wage is fixed at OW, the actual wage rate for the workers will increase from W1 to W2. This increase in wage rate will encourage more workers to supply their labor in the market, while at the same time, firms will be discouraged from hiring as many workers as before due to the higher cost of labor. As a result, the quantity of labor demanded (Q1) will be less than the quantity of labor supplied (Q2), leading to a surplus of labor, which is commonly known as unemployment. Therefore, the correct answer is "Unemployment results."

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A major factor affecting the value of money is the price level. The value of money refers to its purchasing power, or the amount of goods and services that can be purchased with a certain amount of money. Inflation, which is the general increase in prices over time, reduces the value of money because it reduces the amount of goods and services that can be purchased with the same amount of money. Deflation, which is the general decrease in prices over time, increases the value of money because it increases the amount of goods and services that can be purchased with the same amount of money. Therefore, the price level is a major factor affecting the value of money because it determines the amount of goods and services that can be purchased with a given amount of money. When prices are high, the value of money is low, and when prices are low, the value of money is high. Central banks and monetary authorities use various tools, such as interest rates and money supply, to manage the value of money and maintain price stability.

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The law of comparative advantage states that a country should specialize in producing the goods or services that they can produce at a lower opportunity cost than their trading partner. In other words, a country should focus on producing the goods or services that it can make relatively efficiently, compared to other goods or services, even if it doesn't have an absolute advantage in producing any of them. This allows both countries to trade with each other, resulting in overall economic growth and prosperity. So, the option that best represents the law of comparative advantage is "in which its opportunity cost is lower than that of the trade partner."

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A company is said to be highly geared if the value of fixed interest loans is high compared to the value of share capital. In other words, a highly geared company has a larger proportion of debt (loans with fixed interest payments) in its capital structure compared to equity (shares). This means that the company has a higher level of financial leverage and is more reliant on debt financing to operate and invest in its business. Being highly geared can have advantages and disadvantages for a company. On one hand, debt financing can provide tax advantages and allow a company to leverage its operations for higher returns on equity. On the other hand, high levels of debt can increase the risk of financial distress if the company is unable to generate sufficient cash flow to make interest payments on its loans. This can lead to default, bankruptcy, and potential insolvency. Therefore, it is important for companies to carefully manage their capital structure and maintain a balance between debt and equity financing that reflects their financial goals, risk tolerance, and operating conditions.

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The main objective of public expenditure does NOT include revenue sharing and profit maximization. Public expenditure refers to the spending of government revenue on various public goods and services that benefit society. The primary objectives of public expenditure are to stabilize the national economy, achieve a more equitable income distribution, and meet the social needs of the people. Stabilization of the national economy involves using public expenditure to stabilize economic growth and prevent recessions or inflation. Achieving a more equitable income distribution involves using public expenditure to reduce income inequality and provide equal access to public goods and services for all citizens. Meeting the social needs of the people involves using public expenditure to provide public goods and services, such as education, healthcare, and infrastructure, that benefit society as a whole. Revenue sharing and profit maximization are not objectives of public expenditure because they are related to the private sector and not the government. So, the option that best represents a main objective of public expenditure that is not included is "Revenue sharing and profit maximization."

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The type of business finance that entitles the holder to a fixed rate of dividend is preferred stock. Preferred stock represents ownership in a company, and it is a type of stock that gives the shareholder priority over common stockholders in receiving dividends and assets in the event of liquidation. Preferred stockholders receive a fixed rate of dividend, which is typically higher than the dividend paid to common stockholders. This means that preferred stockholders are entitled to a fixed rate of return on their investment before common stockholders receive any dividend payments. Preferred stockholders also have a higher claim on the assets of the company than common stockholders in the event of liquidation. Common stockholders, on the other hand, have the potential for higher returns but also face higher risks. Debenture stock is a type of unsecured loan that does not entitle the holder to any ownership in the company, while a bank loan is a form of debt financing that requires the borrower to pay back the loan with interest, but does not entitle the lender to any ownership in the company. So, the option that best represents the type of business finance that entitles the holder to a fixed rate of dividend is "preferred stock."

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Optimum population is the population level at which per capita income is at a maximum. Per capita income is the average income per person in a population, and it is a measure of the economic well-being of a country. An increase in population may lead to an increase in production and output, but if the increase is not proportionate to the increase in population, per capita income will decrease. This can happen if resources become scarce or if there is a decrease in productivity. Therefore, the optimum population is the level at which the population is neither too small nor too large to make the most efficient use of available resources and achieve the highest possible standard of living for the population. At this level, per capita income is maximized, and the country can attain sustainable economic growth and development. It is important to note that the optimum population is not the same as the maximum population or the population at which birth rate equals death rate. The latter is a theoretical concept known as the carrying capacity, which refers to the maximum population that an ecosystem can sustain over the long term without causing damage to the environment or depletion of resources.

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Industries that can be characterized by relatively low transport costs for both raw materials and output and factor mobility being randomly located are typically those that don't require heavy or bulky raw materials, or that don't produce outputs that are difficult or expensive to transport. For example, industries that deal with lightweight and high-value goods like electronics or software, or those that use local and renewable resources like solar or wind power, can benefit from being located almost anywhere. In contrast, industries that rely heavily on large and heavy raw materials like mining or forestry, or that produce bulky and perishable outputs like agriculture or dairy, often face significant transport costs and may need to be located close to their inputs or markets. Additionally, industries that require specialized or highly skilled labor may also be limited in their location options due to factors like access to education and training. Constant returns to scale means that if a firm doubles its inputs, it will also double its output. Significant economies of scale means that as a firm increases its scale of production, it experiences decreasing costs per unit of output. Neither of these factors necessarily relate directly to transport costs or factor mobility, so they are not directly relevant to this question.

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The correct set of associations between factors of production and factor prices is (land, rent), (capital, interest), (labour, wage). Land is a natural resource used in production, and its price is referred to as rent. Capital refers to the man-made resources used in production, and its price is interest. Labour represents the human effort put into production, and its price is referred to as a wage. Therefore, option (D) is the correct answer as it correctly associates land with rent, capital with interest, and labor with wages. Option (A) is incorrect because labor earns wages, not profit, while capital earns profits. Option (B) is incorrect because land earns rent, not interest, while capital earns profits. Option (C) is incorrect because labor earns wages, not rent, while land earns rent.

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The marginal theory of distribution makes an assertion that the price of any factor depends upon its marginal productivity. This means that the price that a factor of production receives, such as wages for labor or rent for land, is determined by the additional output it produces. For example, if a worker can produce 10 units of output per hour, and the market price for each unit is $10, then the marginal productivity of the worker is $100 per hour. In a competitive market, the worker's wage would tend to be equal to their marginal productivity, so they would be paid approximately $100 per hour. This theory is based on the idea that the value of a factor of production is determined by the value of the output it produces. If a factor is highly productive and produces a lot of output, it will be in high demand and its price will be higher. On the other hand, if a factor is less productive and produces less output, it will be in lower demand and its price will be lower. Therefore, the marginal theory of distribution asserts that the price of any factor of production depends on its marginal productivity, or the additional output it produces.

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Cost-push inflation is caused by an increase in factor prices. When the prices of production factors such as labor, raw materials, and energy increase, it results in an increase in the cost of production. As a result, firms must charge higher prices to maintain their profit margins. This, in turn, leads to an increase in the general price level in the economy. Cost-push inflation can be caused by several factors such as an increase in wages, an increase in the price of raw materials, an increase in taxes, and an increase in the price of imported goods. It can have a negative impact on the economy, as it leads to a decrease in purchasing power and a decrease in the overall economic activity. Growth of government expenditure, increase in money supply, and hoarding may cause inflation, but they do not cause cost-push inflation.

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If the cost of production for a firm continues to increase as its output rises, the firm is said to be experiencing diseconomies of scale. Diseconomies of scale occur when a firm's long-run average cost of production increases as the scale of production increases. This means that as the firm produces more, it becomes less efficient and faces higher costs per unit of output. This can happen for a variety of reasons, such as a decrease in managerial efficiency, an increase in transportation costs, or a decrease in specialization and coordination. In contrast, economies of scale occur when a firm's long-run average cost of production decreases as the scale of production increases. This means that as the firm produces more, it becomes more efficient and faces lower costs per unit of output. Economies of scale can arise from factors such as specialization, division of labor, and increased bargaining power with suppliers. Understanding diseconomies of scale is important for firms because it can affect their profitability and competitiveness. When a firm experiences diseconomies of scale, it may need to consider restructuring or downsizing in order to improve its efficiency and reduce costs.

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The term "double coincidence of wants" is usually associated with a barter exchange mechanism. Barter exchange is a system of trade where goods and services are directly exchanged for other goods and services without using money as an intermediary. In this system, two parties must agree to exchange goods or services that each party wants or needs. However, for this exchange to occur, both parties must have what the other wants or needs at the same time and place, which is known as the "double coincidence of wants." For example, imagine a farmer who wants to trade his wheat for a cow from a rancher. The trade can only occur if the rancher wants the wheat and the farmer wants the cow at the same time and place. If the rancher does not want wheat or if the farmer wants a horse instead of a cow, the trade cannot occur. This requirement can make barter exchange difficult and inefficient, especially for large-scale transactions. In contrast, monetary exchange mechanism uses money as a medium of exchange, which eliminates the need for the double coincidence of wants. In this system, goods and services are bought and sold using a universally accepted currency, which can be used to buy anything, anytime, anywhere. This makes trade more efficient and flexible, as individuals can buy and sell goods and services without the need for a direct trade with the double coincidence of wants.

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Given perfect competition in the capital market, the opportunity cost of capital is adequately reflected by the interest rate. In a perfectly competitive capital market, firms can borrow or lend capital at the prevailing market interest rate. The interest rate represents the cost of borrowing or the return on lending capital, which is determined by the supply and demand for capital. The opportunity cost of capital refers to the cost of forgoing the next best alternative investment opportunity when investing in a particular project. It represents the return that could have been earned from the alternative investment opportunity. For example, if a firm invests in a project that generates a return of 10%, but there was another investment opportunity that would have generated a return of 12%, then the opportunity cost of capital is 12%. In a perfectly competitive capital market, the interest rate reflects the opportunity cost of capital because it represents the return that investors could have earned from the next best alternative investment opportunity. If the interest rate is high, it implies that there are many profitable investment opportunities available, and the opportunity cost of capital is also high. On the other hand, if the interest rate is low, it implies that there are few profitable investment opportunities available, and the opportunity cost of capital is also low. Therefore, the interest rate adequately reflects the opportunity cost of capital in a perfectly competitive capital market.

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National income is equal to the sum of all income earned by individuals and businesses in a country over a certain period. In the given options, national income is represented by the equation C + I + X - M. - C represents consumption expenditure by households and individuals. - I represents investment expenditure by businesses. - X represents exports, which is the total value of goods and services produced in a country and sold to other countries. - M represents imports, which is the total value of goods and services produced in other countries and bought by consumers in the domestic country. Subtracting imports from exports (X - M) gives the net exports, which represents the balance of trade. It is the difference between the value of exports and imports, and can be positive or negative depending on whether a country is exporting more or importing more. Therefore, the correct equation for national income is C + I + X - M, which includes all the major components of a country's economy.

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The important determinant of the magnitude of price elasticity of demand is the durability of the product. Price elasticity of demand refers to the degree to which the quantity demanded of a product changes in response to a change in the product's price. The more responsive the quantity demanded is to price changes, the greater the price elasticity of demand. The durability of a product is an important factor that determines how quickly consumers can find substitutes for the product. If a product is durable, then it is likely that consumers can delay their purchases until the price of the product falls or they can find a substitute. In this case, a small change in price will lead to a relatively large change in quantity demanded, making the demand for the product price elastic. Conversely, if a product is not durable, consumers may not be able to delay their purchases or find a substitute, making the demand for the product price inelastic. Therefore, the option that best represents an important determinant of the magnitude of price elasticity of demand is "Durability of the product".