WAEC SSCE - Economics - 1998

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The study of economics enables individuals to derive maximum satisfaction from the money they spend. Economics is a social science that studies the production, consumption, and distribution of goods and services. It helps individuals to understand the principles of how people make choices and allocate their resources, including money. By studying economics, individuals can learn how to make rational decisions about how to spend their money to maximize their satisfaction or utility. They can also understand how markets work and how to make informed decisions about purchasing goods and services. Therefore, the study of economics enables individuals to make better choices about how to spend their money to achieve their goals and maximize their satisfaction.

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If the last Naira spent on each commodity by a consumer gave him equal satisfaction, it means the consumer has been able to maximize his utility. Utility refers to the satisfaction or happiness that a consumer derives from consuming a particular good or service. In this scenario, since the last Naira spent on each commodity provides equal satisfaction, the consumer has achieved the highest possible level of satisfaction from his spending, which is referred to as utility maximization.

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The level of economic development is low in Nigeria because of ineffective plan implementation. This means that despite the existence of planning models, the implementation of these plans has been poor and ineffective. The lack of proper execution has led to a number of challenges such as poor infrastructure, insufficient investment, lack of diversification, and high unemployment rates. These challenges have hindered economic growth and development in the country. Additionally, the lack of practical relevance in planning, coupled with the absence of a unique planning model, has also contributed to the low level of economic development in Nigeria.

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If a government owed a company N10,000 in 1966, and paid off the debt fully in 1985, when the value of money had depreciated by 20 percent, it means that the government had gained. This is because the value of money in 1985 was 20 percent less than the value of money in 1966. Therefore, the government was able to pay off the debt with money that was worth less than the money it borrowed, effectively paying less than N10,000 in today's value. This is a common occurrence during periods of inflation, where the value of money decreases over time.

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In a joint-stock company, the shareholders are the owners. A joint-stock company is a type of business entity in which the ownership is divided into shares or stocks, and each shareholder owns a proportionate share of the company. Shareholders have the right to vote on important company decisions, receive dividends, and participate in the distribution of profits. However, they are not involved in the day-to-day management or decision making of the company. That responsibility lies with the management or board of directors, who are appointed by the shareholders to oversee the company's operations.

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Export is not a type of industry. Export refers to the act of sending goods or services to another country for sale. It is a trade activity that involves the exchange of goods and services between countries. In contrast, construction, mining, manufacturing, and transport are all types of industries that involve the production or movement of goods or services.

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The economic system in which private firms make decisions on what to produce, how to produce, and for whom to produce is called capitalism. In a capitalist system, the means of production and distribution are owned and controlled by private individuals or companies, rather than the state or government. The basic principle of capitalism is that individuals are free to pursue their own economic self-interest, and the market, through the forces of supply and demand, determines the prices and quantities of goods and services produced.

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The West African house was established to enhance financial transaction among member countries. The West African House was the first regional bank in Africa, established in 1948 to promote trade and economic integration among member countries of the West African Monetary Union (WAMU). The bank provides a range of services including financing of development projects, trade financing, and technical assistance to member countries to promote economic development and stability in the region. The ultimate goal of the West African House is to enhance economic cooperation among member countries through financial integration and cooperation.

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An imperfect competitor is in equilibrium when the marginal cost (MC) is equal to marginal revenue (MR). This is because a firm will produce at a level where the additional cost of producing one more unit of output (MC) is equal to the additional revenue gained by selling that additional unit (MR). At this point, the firm is maximizing its profits and there is no incentive to produce more or less output. Therefore, the firm will continue to produce at this level of output until there is a change in either cost or revenue.

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Banks create money by lending out deposits to borrowers. When someone deposits money into a bank account, the bank is required to hold only a fraction of that deposit as reserves, which means they can lend out the rest. This money lent out to borrowers is new money created by the bank, which then becomes deposits in the accounts of the borrowers. This process of lending and creating new money continues, resulting in an expansion of the money supply in the economy.

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Scarcity means that there are limited resources to meet unlimited wants. One way of solving this problem is for individuals to choose between alternative wants since they cannot meet all their wants. This means that individuals need to prioritize their wants and choose the most important ones that they can afford with their available resources. By doing this, they can maximize their satisfaction and make the most efficient use of their limited resources.

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The instrument used in many countries to restrict imports is high tariffs. A tariff is a tax imposed on imported goods and services, making them more expensive and less competitive in the domestic market. This is done to protect local industries from foreign competition and stimulate domestic production. High tariffs make imports less attractive and promote local production and consumption. Therefore, many countries use tariffs as a means of restricting imports and promoting domestic industries.

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The introduction of division of labour in a firm can lead to an increase in output. Division of labour refers to the specialization of tasks among workers whereby each worker performs a specific task in the production process repeatedly. By performing the same task repeatedly, workers become more skilled and efficient, leading to an increase in productivity and output. Additionally, division of labour can also lead to time-saving, reduction in waste and errors, and a better utilization of resources, all of which can contribute to an increase in output. Therefore, it can be concluded that the introduction of division of labour in a firm is likely to result in an increase in output.

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To find the price at which a trader will be ready to sell 6 oranges, we can substitute q = 6 in the equilibrium equation p = 1/2q + 2. p = 1/2(6) + 2 p = 3 + 2 p = 5 Therefore, the trader will be ready to sell 6 oranges at a price of N5.00.

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Malthus' contention is that population increases at a faster rate than food production. He argued that while population grows at a geometric progression, food production only increases at an arithmetic progression. As a result, there will come a time when the population will outstrip the food supply, leading to famine, disease, and other forms of suffering. He also believed that population growth should be controlled to prevent these negative consequences.

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Development plans in Nigeria have deviated from their targets due to political instability. Political instability has been a major factor affecting the success of development plans in Nigeria. The frequent changes in government policies, coups, and the lack of consistency in economic policies have affected the effective implementation of development plans. Political instability leads to uncertainties which make it difficult for investors to make long-term investments in the country. This has led to the stunted growth of various sectors of the economy, which in turn has resulted in the deviation from the targets set in development plans.

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If the equilibrium price of mangoes is N1.00, it means that at that price, the quantity of mangoes demanded by consumers is equal to the quantity of mangoes supplied by producers. If the price falls to 50k, it means that the price of mangoes has decreased below the equilibrium price. This will result in an increase in the quantity of mangoes demanded by consumers as mangoes become more affordable, while producers will reduce the quantity of mangoes supplied because the price is now too low for them to make a profit. As a result, there will be excess demand for mangoes, which means that consumers want to buy more mangoes than producers are willing to supply at the lower price. This excess demand could lead to a shortage of mangoes in the market, as consumers compete to buy the available supply. Therefore, the answer is "an excess demand."

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Efficiency of resource use means maximizing output from a given amount of resource. It involves using the resources available in the best possible way to achieve the desired objectives. This can be done by producing the maximum amount of goods and services with the minimum amount of resources, minimizing wastage, and using the right resources for the right purposes. The efficient use of resources leads to the reduction of costs and the maximization of profits, which is important in any economic activity.

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The advantage of localization of industry is that firms can have a large pool of skilled labor. Localization of industry refers to the concentration of industries in a particular region or area. This leads to the development of a cluster of related industries, which attracts a skilled labor force to the area. Firms benefit from this concentration of skilled labor because they have a large pool of qualified workers from which to choose. This can increase the efficiency and productivity of firms, leading to greater profits and growth. Additionally, firms in a localized industry can benefit from the sharing of resources and knowledge within the cluster, leading to further innovation and development.

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Price index is used to measure inflation. It is a statistical measure that tracks the changes in the prices of a basket of goods and services over time. The basket of goods and services typically represents the items that an average household consumes. The price index can help to determine the rate of inflation, which is the rate at which the general level of prices for goods and services is rising over a given period of time. Commonly used price indices include the Consumer Price Index (CPI) and the Producer Price Index (PPI).

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Total cost is the sum of all costs incurred by a business in producing a given level of output. It includes both fixed costs (such as rent and salaries) and variable costs (such as raw materials and production costs). Therefore, the correct answer is "fixed cost and variable cost".

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The progressive system of taxation implies that the tax rate increases as the tax base (income or wealth) increases. This means that individuals who earn higher incomes or have greater wealth are required to pay a larger percentage of their income or wealth in taxes compared to those with lower incomes or less wealth. The idea behind this system is to make the tax burden more equitable, with the ability to pay being taken into account. In other words, the wealthy are expected to contribute more to the government's revenue than the poor. This system is often used to redistribute wealth and reduce income inequality.

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The export price of mineral oil, also known as crude oil, is the main factor that determines the stability of the Nigerian economy. Nigeria is one of the largest exporters of crude oil in the world and the revenue generated from the sale of crude oil accounts for a significant portion of the country's GDP. Therefore, fluctuations in the international price of crude oil can have a significant impact on the Nigerian economy. If the price of crude oil is high, Nigeria can earn more revenue, which can be used to finance developmental projects and boost economic growth. However, if the price of crude oil is low, it can lead to a decline in revenue, which can result in economic instability and a decrease in the standard of living of the Nigerian people.

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A major setback in any mixed economy is the absence of profit motive in the public sector, which may reduce incentives for hard work. A mixed economy combines both capitalist and socialist systems, allowing the freedom of choice in the production and consumption of goods and services. However, government intervention is necessary to secure full utilization of resources. In a mixed economy, economic decisions are determined by both market forces and government policies. The public sector is run by the government, and profit motive may not be as strong as in the private sector. This may lead to a lack of incentives for workers in the public sector, which can affect productivity and the overall performance of the economy.

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The expenditure of a firm on goods and services for the expansion of its productive capacity is known as investment. Investment can include the purchase of capital goods, such as machinery, equipment, and buildings, as well as research and development activities. This expenditure is made with the expectation that it will generate future returns and contribute to the growth and profitability of the firm. Investment is important for economic growth because it leads to increased productivity and job creation, which in turn can lead to higher incomes and improved standards of living.

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The shape of the average cost (AC) shows that as production increases, the average cost decreases and then increases. The average cost (AC) is the cost per unit of production, calculated by dividing the total cost by the quantity produced. As production increases, the average cost initially decreases because the fixed cost is spread over a larger number of units. However, at some point, the marginal cost begins to increase, causing the average cost to increase as well. This happens because, beyond a certain level of production, the additional cost of producing each additional unit increases due to factors such as diminishing returns, increased specialization, and higher input costs. Therefore, the correct answer is that as production increases, the average cost decreases and then increases.

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The factor affecting the size of national income is the size of the active population. The active population refers to the number of people who are employed and actively contributing to the production of goods and services in an economy. The larger the size of the active population, the greater the potential for the production of goods and services, which in turn can increase the size of the national income. As more people are employed, there is a greater output of goods and services, leading to increased economic growth and a higher national income. Therefore, the size of the active population is an important factor in determining the size of a nation's income. The other options listed, such as taste of consumers, number of registered trade unions, credit-worthiness of neighbouring countries, and regularity of payment of national debt, do not directly impact the size of national income.

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Total cost is the sum of all costs incurred in the production of a good or service. It includes both fixed costs and variable costs. Fixed costs are costs that do not change with changes in the level of output, while variable costs change with changes in the level of output. Examples of fixed costs are rent, insurance, and salaries of permanent staff. Examples of variable costs are raw materials, fuel, and hourly wages of workers. Therefore, the correct option is "fixed cost and variable cost".

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External economies refer to the cost-saving advantage that a firm enjoys when being close to other firms in the same industry. This means that a firm can benefit from the shared infrastructure, technology, and skilled labor that are available in the area, leading to lower production costs and higher productivity. It can also result in the growth of the industry in the area, attracting more suppliers, customers, and investors.

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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.

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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 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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(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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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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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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(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) 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.