WAEC SSCE - Economics - 2016 (Essay)

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(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.

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(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.)

Detalles de la respuesta

(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.

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(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.

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(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.

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(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.)

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