WAEC SSCE - Economics - 2019
Pregunta 1 Informe
Two commodities X and Y are in joint supply when
Detalles de la respuesta
Two commodities X and Y are in joint supply when they are produced together by the same process, and an increase in the production of one commodity leads to an increase in the production of the other. This means that the production of X and Y are interdependent, and they cannot be produced separately. For example, crude oil and natural gas are in joint supply because they are produced together from the same oil wells, and an increase in the production of crude oil leads to an increase in the production of natural gas as well.
Pregunta 2 Informe
The short-run in production is the time period when
Detalles de la respuesta
The short-run in production is the time period where at least one factor of production is fixed, while others are variable. In the short-run, a business cannot change all of its factors of production, such as capital equipment or the size of its physical plant, due to time or cost constraints. Therefore, it must operate with at least one factor of production fixed, while others are variable, such as labor, raw materials, or energy. For example, a bakery may have a fixed number of ovens in the short-run, but it can hire additional workers or purchase more flour to increase its output. Similarly, a farmer may have a fixed amount of land in the short-run, but can vary the amount of labor and fertilizer used to produce crops. Therefore, the short-run is characterized by at least one fixed factor of production and one or more variable factors of production that a business can adjust to increase output or reduce costs.
Pregunta 3 Informe
A point X inside the production possibility curve indicates that
Detalles de la respuesta
A point X inside the production possibility curve indicates that some resources are idle. This means that the country is not producing the maximum amount of goods and services it can with the given resources. It could be due to inefficiencies in the production process or lack of demand for certain goods and services. However, it does not necessarily mean that the country is poor or that resources are not available.
Pregunta 4 Informe
Devaluation of currency may not correct a balance of payments deficit if the demand for export is
Detalles de la respuesta
Perfectly inelastic. If the demand for a country's exports is perfectly inelastic, it means that the quantity demanded of those exports does not change, no matter what the price is. In other words, the price of the exports does not affect the amount that people are willing to buy. In this case, devaluing the currency (making exports cheaper for foreign buyers) will not lead to an increase in demand for exports and thus will not correct a balance of payments deficit. The demand for the country's exports would have to be fairly elastic or perfectly elastic for devaluation to have an impact on the balance of payments.
Pregunta 5 Informe
An improvement in a country's terms of trade means that the
Detalles de la respuesta
Pregunta 6 Informe
Middlemen are made up of
Detalles de la respuesta
Middlemen refer to the intermediaries or agents that facilitate the movement of goods and services from the producer to the end-user. Middlemen can be made up of various entities, including manufacturers, wholesalers, retailers, and consumers, depending on the specific context. In general, middlemen are involved in the distribution of goods and services from the point of production to the point of consumption. They help to bridge the gap between producers and consumers by performing functions such as transportation, storage, financing, and risk-taking. In the context of the given options, middlemen are typically composed of wholesalers, retailers, and consumers. Wholesalers buy goods in bulk from manufacturers and sell them in smaller quantities to retailers, who in turn sell them to consumers. Consumers, on the other hand, buy goods for their personal use. In summary, middlemen are intermediaries that facilitate the movement of goods and services from producers to end-users, and they can be made up of various entities depending on the specific context. In the given options, middlemen are typically composed of wholesalers, retailers, and consumers.
Pregunta 7 Informe
Supply of agricultural products is likely to be elastic in the
Detalles de la respuesta
The supply of agricultural products is likely to be elastic in the long-run. This means that the quantity supplied of agricultural products can change significantly in response to changes in price over a longer period of time. In the long-run, farmers are able to make changes to their operations such as planting different crops, acquiring new technologies, or changing the size of their farms. These changes can result in a significant increase or decrease in the quantity of agricultural products supplied. On the other hand, the supply of agricultural products is likely to be inelastic in the short-run, as farmers may not be able to quickly adjust their operations to changes in price. This is because it takes time to make changes to agricultural operations, such as planting new crops or acquiring new technologies.
Pregunta 8 Informe
What happens when the central bank increases the bank rate?
Detalles de la respuesta
Amount of borrowing decreases. When the central bank increases the bank rate, it becomes more expensive for commercial banks to borrow money from the central bank. As a result, commercial banks are likely to pass on this increase in cost to their customers by charging higher interest rates on loans. This makes borrowing more expensive for individuals and businesses, which can lead to a decrease in the amount of borrowing. The idea behind this is to control inflation and encourage saving.
Pregunta 9 Informe
Which of the following items is not considered as a transfer payment?
Detalles de la respuesta
Doctor's salary is not considered as a transfer payment. Transfer payments refer to payments made by the government to individuals or organizations for which no goods or services are exchanged. Transfer payments are meant to redistribute income and promote social welfare. Pension pay, government subsidies, and students' grants are all examples of transfer payments because they are payments made by the government to individuals or organizations for which no goods or services are exchanged. Pension pay is a payment made to retired individuals, government subsidies are payments made to support certain industries or individuals, and students' grants are payments made to support education. However, a doctor's salary is not considered a transfer payment because it is a payment made in exchange for the services provided by the doctor. The doctor is providing a service, and in exchange, they are receiving a salary from their employer. Therefore, it is not a transfer payment.
Pregunta 10 Informe
Human development can be improved if
Detalles de la respuesta
Human development can be improved if general education and training are encouraged. Education is a key factor in human development, as it provides individuals with the knowledge and skills they need to succeed in life. A well-educated population is more likely to be productive and creative, and to enjoy better health, higher levels of income, and a higher standard of living. Investing in education can also lead to broader social and economic benefits. For example, it can help reduce poverty and inequality, and promote sustainable economic growth. It can also help to build more inclusive and democratic societies, by giving people the knowledge and skills they need to participate fully in the political and economic life of their communities. So, in a very simple way, promoting general education and training can help to improve human development by providing individuals with the skills they need to succeed, and by promoting broader social and economic benefits.
Pregunta 11 Informe
In a period of unemployment and falling prices, the government should adopt a
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Pregunta 12 Informe
The wages of a group of workers in dollars is stated below;
40, 30, 70, 20, 60, 10, 10, 80, 30, and 10.
What is the mean wage
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Pregunta 13 Informe
What effect will an increase in the supply of fish have on the meat market
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Pregunta 14 Informe
When the price of a good is above the equilibrium, there will be
Detalles de la respuesta
When the price of a good is above the equilibrium, there will be a surplus. This is because at the higher price, suppliers are willing to supply more of the good than consumers are willing to buy. As a result, there will be excess supply, or a surplus, of the good. To get rid of this surplus, suppliers may have to lower their prices until they reach the equilibrium price where the quantity supplied equals the quantity demanded.
Pregunta 15 Informe
Which of the following is true of the value of money? It
Detalles de la respuesta
The value of money is inversely related to the price level. This means that as the price level increases, the value of money decreases, and as the price level decreases, the value of money increases. For example, if the price of a gallon of milk is $3, and the value of money is such that one dollar can buy one gallon of milk, then the value of money is $1. However, if the price of a gallon of milk increases to $4, and the value of money remains the same, then the value of money has decreased, as it now takes $4 to purchase one gallon of milk instead of $3. This relationship between the value of money and the price level is known as the quantity theory of money, which states that the value of money is determined by the supply and demand for money in the economy. When the money supply increases, the value of money decreases, and when the money supply decreases, the value of money increases. This is because as the money supply increases, there is more money available to purchase goods and services, which increases demand and drives up prices. Therefore, the statement that the value of money is inversely related to the price level is true.
Pregunta 16 Informe
Govermment in most cases influences the location of firms to
Detalles de la respuesta
In many cases, the government can influence the location of firms. The government may do this for various reasons such as to promote economic development or to achieve social objectives. One reason why the government may influence the location of firms is to ensure an equitable distribution of economic opportunities across the country. This means that the government may encourage firms to locate in areas that are underdeveloped or have a high rate of unemployment, to create jobs and stimulate economic growth in those areas. Another reason why the government may influence the location of firms is to reduce the cost of production. For example, the government may offer tax incentives or subsidies to firms that locate in certain areas that have a lower cost of living or lower wage rates. This would make the production process cheaper and more efficient for the firms. Lastly, the government may influence the location of firms to help them enjoy economies of scale. This means that firms can benefit from lower production costs and higher profits by producing at a larger scale. By encouraging firms to locate in certain areas, the government can help create a concentration of similar businesses, which can lead to greater specialization and collaboration, and ultimately reduce the costs of production.
Pregunta 18 Informe
What happens when a minimum price is imposed in a market?
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Pregunta 19 Informe
| Units of quantity consumed | Total utility | Marginal utility |
| 0 | - | - |
| 1 | 10 | 10 |
| 2 | 15 | 5 |
| 3 | 17 | 2 |
| 4 | 18 | 1 |
| 5 | 18 | 0 |
The table above illustrates the law of?
Detalles de la respuesta
The table above illustrates the law of diminishing marginal utility. According to this law, as we consume more and more units of a product, the additional satisfaction or utility that we get from consuming each additional unit will start to decrease. In other words, the marginal utility of each additional unit consumed will diminish. Looking at the table, we can see that as the quantity consumed increases, the total utility increases as well, but at a decreasing rate. Additionally, we can see that the marginal utility starts to decline after the second unit is consumed. For example, the first unit consumed gives a marginal utility of 10, the second unit gives a marginal utility of 5, and the third unit gives a marginal utility of only 2. This shows that the additional satisfaction gained from each unit consumed is decreasing. Therefore, the answer is "diminishing marginal utility."
Pregunta 20 Informe
In perfect competition, the average revenue curve of a firm is
Detalles de la respuesta
In perfect competition, the average revenue curve of a firm is identical to the marginal revenue curve. This is because in a perfectly competitive market, a firm is a price taker, which means that it cannot influence the market price and must sell its output at the prevailing market price. Since the market price is constant, the average revenue curve is also constant at that price. Meanwhile, the marginal revenue curve represents the additional revenue earned by the firm for each additional unit of output sold. In perfect competition, this additional revenue is equal to the market price, which is constant. Therefore, the marginal revenue curve is also constant and identical to the average revenue curve. Hence, the correct answer is: the marginal revenue curve.
Pregunta 21 Informe
Which of the following factors is not a condition for a change in the supply of a commodity
Detalles de la respuesta
The price of the commodity is not a condition for a change in the supply of a commodity. The price of a commodity is a reflection of the supply and demand for that commodity, and a change in price will cause a shift in either the supply or the demand curve. However, a change in price is not a factor that directly causes a change in the supply of a commodity. Improved technology, cost of production, and government tax policies are all factors that can influence the supply of a commodity. Improved technology can make it easier and more efficient to produce a commodity, leading to an increase in supply. The cost of production includes the cost of labor, raw materials, and other inputs that are used to produce a commodity. If the cost of production increases, the supply of the commodity may decrease. Government tax policies can also impact the supply of a commodity by changing the incentives for producers to supply the commodity. For example, a tax on a commodity may increase the cost of production, leading to a decrease in supply.
Pregunta 22 Informe
Citizens are protected from the government's arbitrariness in taxation by the canon of
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Pregunta 23 Informe
If the demand function is Qd = -0.5 + 20, calculate the quantity demanded when price is $15.0
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Pregunta 24 Informe
In most underdeveloped countries, development plans do not achieve their objective due to
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Pregunta 25 Informe
The total value of goods and services produced within the borders of a country is
Detalles de la respuesta
The total value of goods and services produced within the borders of a country is called "gross domestic product" or GDP for short. GDP measures the monetary value of all final goods and services produced within a country's borders during a specific period of time, typically a year. GDP includes all goods and services produced by businesses and individuals, including investments and government spending. It does not include goods and services produced by a country's citizens or businesses outside of its borders, which is measured by "gross national product" or GNP. However, to get the net values, we subtract the depreciation of capital from GDP to get "net domestic product" or NDP and we also subtract the income earned by foreigners in the country from GNP to get "net national product" or NNP.
Pregunta 26 Informe
The desire for profits is a major feature of
Detalles de la respuesta
The desire for profits is a major feature of a market economy. In a market economy, individuals and businesses operate to make a profit by producing goods and services that people are willing to pay for. The pursuit of profit drives economic activity and helps to allocate resources efficiently.
Pregunta 27 Informe
Exploitation of forest resources becomes a major problem when
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Pregunta 28 Informe
The table below shows the short-run cost of a firm. Use it to answer the question below
| Quantity (kg) | Fixed cost ($) | Variable cost ($) | Total cost ($) | Marginal cost ($) | Average cost ($) |
| 1 | 750 | 200 | 950 | - | 950 |
| 2 | 750 | 560 | 1310 | 360 | 655 |
| 3 | 750 | 900 | P | Q | 550 |
Calculate the value of Q
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Pregunta 31 Informe
The major achievement of the Economic Community of West African States (ECOWAS) is that it has
Detalles de la respuesta
The major achievement of the Economic Community of West African States (ECOWAS) is that it has widened the market for goods produced in West Africa. ECOWAS has established a free trade area among its member countries, which has removed barriers to trade such as tariffs and import/export restrictions. This has allowed for increased movement of goods and services across borders, which has facilitated economic growth and development in the region. Additionally, ECOWAS has implemented various policies and programs aimed at promoting intra-regional trade and investment, which has further expanded the market for goods produced in West Africa.
Pregunta 32 Informe
Which of the following institutions is Concerned with expanding developing countries' commodity trade
Detalles de la respuesta
Pregunta 33 Informe
The major employer of labour in developing countries is the
Detalles de la respuesta
In developing countries, the major employer of labor is the primary sector. This sector involves activities such as agriculture, fishing, mining, and forestry, which are mainly focused on producing raw materials. Many people in developing countries work in agriculture, either as small-scale farmers or as laborers on larger farms. This is because agriculture is often the most accessible and widespread economic activity in these countries. While the secondary sector (which involves manufacturing and construction) and tertiary sector (which involves services such as banking, education, and healthcare) also provide employment opportunities, they are not as prevalent as the primary sector. The industrial sector, which may refer to a subset of the secondary sector, involves activities related to heavy industry, manufacturing, and engineering, and is also not as widespread in developing countries.
Pregunta 34 Informe
In most developing countries, a large percentage of the labour force is engaged in
Detalles de la respuesta
In most developing countries, a large percentage of the labor force is engaged in agriculture. Agriculture is a critical sector in many developing countries, as it provides food and livelihoods for a large portion of the population. This sector can include farming, livestock raising, and fishing, among other activities. While the other sectors such as trading, mining, and manufacturing are also important in many developing countries, agriculture remains one of the largest employers and a significant contributor to the economy. However, the exact distribution of the labor force across different sectors can vary depending on the specific country and its development status.
Pregunta 35 Informe
The use of interest rates to control the money supply is a
Detalles de la respuesta
The use of interest rates to control the money supply is a monetary policy. Monetary policy is the process by which a government, central bank, or monetary authority manages the supply of money and the availability of credit in an economy with the goal of promoting economic growth and stability. One of the tools used in monetary policy is setting interest rates. By adjusting the interest rate, the central bank can influence the amount of money that is available in the economy. If the interest rate is high, it becomes more expensive for people and businesses to borrow money, so they tend to borrow less. This can help reduce inflation and stabilize the economy. On the other hand, if the interest rate is low, borrowing becomes cheaper, encouraging more borrowing and spending, which can stimulate economic growth. So, in a very simple way, monetary policy refers to the management of money supply and interest rates by the central bank to achieve economic goals.
Pregunta 36 Informe
If less of a good is bought as one's income increases, such a good is
Detalles de la respuesta
A normal good is a type of good for which demand increases as a person's income increases. This means that as a person earns more money, they are more likely to buy more of this type of good. For example, as a person's income increases, they may purchase more expensive and higher-quality food, clothing, or housing. On the other hand, if demand for a good decreases as a person's income increases, the good is considered to be a luxury good. Luxury goods are items that are considered non-essential, but are still desired because they are associated with status, exclusivity, or high quality. Examples of luxury goods include expensive jewelry, high-end cars, and designer clothing. A necessity is a type of good that a person needs in order to survive, regardless of their income. Examples of necessities include food, water, shelter, and healthcare. Necessities are often considered to be inelastic goods, meaning that the demand for them does not change much as a person's income changes. An inferior good is a type of good for which demand decreases as a person's income increases. This means that as a person earns more money, they are less likely to buy this type of good. Examples of inferior goods include low-quality food and second-hand clothing.
Pregunta 37 Informe
Insurance Companies are similar to commercial banks in that they
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Pregunta 38 Informe
Which of the following means of funding a business is very reliable and cheap?
Detalles de la respuesta
Plough back profits is a very reliable and cheap means of funding a business. Plough back profits, also known as retained earnings, refers to the practice of reinvesting a portion of a company's profits back into the business instead of distributing them as dividends to shareholders. This approach allows a business to use its profits to finance its growth and expansion without incurring additional debt or giving up ownership. Ploughing back profits is reliable because it does not involve any external financing or borrowing, which means the business does not have to worry about meeting repayment obligations or defaulting on loans. Additionally, since the profits are already earned, there is no cost associated with obtaining them. Furthermore, it is a cheap means of funding because there are no interest payments or other fees associated with retaining earnings. Additionally, since the profits belong to the company, there are no equity dilution concerns or ceding control to external investors. Overall, ploughing back profits is a very reliable and cost-effective means of funding a business, allowing it to finance its growth and expansion without incurring additional debt or giving up ownership.
Pregunta 39 Informe
One measure for financing a country's balance of payments deficit is through
Detalles de la respuesta
Pregunta 40 Informe
The motive for holding money to meet unforeseen events is termed
Detalles de la respuesta
The motive for holding money to meet unforeseen events is termed precautionary demand. This refers to the desire of individuals or businesses to hold cash or other liquid assets to be able to cover unexpected expenses or emergencies that may arise in the future. For example, individuals may hold some cash in case they have a medical emergency or their car breaks down. Similarly, businesses may hold cash reserves to be able to pay for unexpected repairs or to cover temporary shortfalls in revenue. The amount of money held for precautionary demand will depend on various factors, including the level of uncertainty or risk associated with future events, the availability of credit or other sources of liquidity, and the cost of holding money versus other investments. Overall, precautionary demand for money reflects the need to have a financial buffer to be able to deal with unexpected events and to manage risk.
Pregunta 42 Informe
Malthusian theory of population was proved wrong because
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Pregunta 43 Informe
Balance of trade involves the exchange of
Detalles de la respuesta
The balance of trade involves the exchange of goods and services between countries. Goods are physical products that can be traded, such as cars, clothes, and food. Services, on the other hand, are intangible products that cannot be touched, such as transportation, banking, and tourism. When countries engage in trade, they can export goods and services they produce and import goods and services that they need. The balance of trade is the difference between the total value of a country's exports and the total value of its imports. If a country exports more than it imports, it has a trade surplus, which means it is earning more from trade than it is spending on imports. If a country imports more than it exports, it has a trade deficit, which means it is spending more on imports than it is earning from exports.
Pregunta 44 Informe
When an increase in inputs leads to a more than proportionate increase in output, there is
Detalles de la respuesta
The situation where an increase in inputs leads to a more than proportionate increase in output is called increasing returns to scale. In other words, if we increase the amount of inputs used in production by a certain percentage, then the output will increase by more than that percentage. For example, if a factory doubles its workforce and, as a result, its production output more than doubles, then this is an example of increasing returns to scale. The opposite of increasing returns to scale is decreasing returns to scale, which occurs when a proportional increase in inputs leads to a less than proportional increase in output. If the increase in inputs results in a proportional increase in output, then this is constant returns to scale.
Pregunta 45 Informe
A cost of production that is positively related to output is the
Detalles de la respuesta
The cost of production that is positively related to output is variable cost. Variable costs are costs that vary with the level of production, such as the cost of raw materials or labor. As production increases, the cost of these inputs also increases, leading to a positive relationship between output and variable costs. For example, if a company produces 10 units of a product and incurs a variable cost of $10 per unit, its total variable cost would be $100. If the company increases production to 20 units, the variable cost would be $200, reflecting the positive relationship between output and variable cost. In contrast, total fixed cost remains constant regardless of the level of production, while average fixed cost decreases as output increases, and social cost refers to the cost to society as a whole, including externalities such as pollution or congestion.
Pregunta 46 Informe
Which of the following is a major advantage of establishing a tomato-processing factory in a country?
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Pregunta 48 Informe
Which of the following factors will not underestimate the national income?
Detalles de la respuesta
The factor that will not underestimate national income is the increase in the value of services not paid for. National income is the total income earned by a country's citizens, including all goods and services produced within the country's borders over a certain period. However, there are various factors that can cause national income to be underestimated. A rapid decrease in prices can underestimate national income because it can make it appear as though less output is being produced, even if the physical volume of goods and services produced remains the same. Increased subsistence production, which refers to the production of goods for personal consumption rather than for sale in the market, can also underestimate national income because it is not captured in official statistics. The practice of specialization of labor, where individuals focus on producing specific goods or services in which they have a comparative advantage, can also underestimate national income if the value of their specialized production is not accurately measured. However, an increase in the value of services not paid for, such as volunteer work or services provided within households, can actually help to more accurately reflect national income. By measuring and accounting for the value of these services, which are often not captured in official statistics, national income can be more accurately estimated.
Pregunta 49 Informe
An increase in the prices of factor inputs may result in
Detalles de la respuesta
An increase in the prices of factor inputs, such as labor, materials, or energy, can lead to an increase in the cost of producing goods and services. When firms face higher costs, they may raise the prices of their products to maintain their profit margins. If the price increases are widespread across the economy, this can lead to a general increase in the level of prices, known as inflation. However, the specific type of inflation that arises from an increase in factor input prices is called cost-push inflation. Cost-push inflation occurs when an increase in the cost of production leads to higher prices for goods and services, which can reduce consumers' purchasing power. It can be particularly problematic if it persists over a long period, leading to lower economic growth and higher unemployment. Therefore, an increase in factor input prices can result in cost-push inflation, which can negatively affect the economy by reducing purchasing power and economic growth.
Pregunta 50 Informe
If the coefficient of price elasticity of demand of a product is zero, then its demand curve will be
Detalles de la respuesta
If the coefficient of price elasticity of demand of a product is zero, it means that the demand for the product is perfectly inelastic. This implies that a change in price will not lead to any change in the quantity demanded of the product. In other words, regardless of the price of the product, the quantity demanded will remain the same. Therefore, the demand curve will be a vertical line parallel to the quantity axis. This is because changes in price will not cause any change in the quantity demanded, and hence the demand curve will not slope. So, the answer is "parallel to the quantity axis."
Pregunta 51 Informe
a. Distinguish between:
i. Growing population and a declining population
ii. overpopulation and underpopulation.
b. Explain any four disadvantages of a rapidly growing population in an economy
a. Distinctions.
i. Growing population versus declining population. A growing population is one that is increasing over time because the sum of births and immigration exceeds the sum of deaths and emigration. A declining population is one that is falling over time because the sum of deaths and emigration exceeds the sum of births and immigration.
ii. Overpopulation versus underpopulation. Overpopulation exists when a country's population is greater than the optimum, so that available resources are too few for the people and per-capita output and living standards fall. Underpopulation exists when the population is below the optimum, so that resources are under-utilised and a larger population could raise per-capita output.
b. Four disadvantages of a rapidly growing population.
- Pressure on social amenities: schools, hospitals, housing, water and roads become overstretched and inadequate for the people.
- Unemployment: the labour force grows faster than the economy can create jobs, raising the level of unemployment and underemployment.
- Low savings and investment: a high number of dependants forces households and government to spend on consumption rather than save, so capital formation is low.
- Falling standard of living: national output is shared among more people, so per-capita income and welfare fall, and food shortages may occur.
Detalles de la respuesta
a. Distinctions.
i. Growing population versus declining population. A growing population is one that is increasing over time because the sum of births and immigration exceeds the sum of deaths and emigration. A declining population is one that is falling over time because the sum of deaths and emigration exceeds the sum of births and immigration.
ii. Overpopulation versus underpopulation. Overpopulation exists when a country's population is greater than the optimum, so that available resources are too few for the people and per-capita output and living standards fall. Underpopulation exists when the population is below the optimum, so that resources are under-utilised and a larger population could raise per-capita output.
b. Four disadvantages of a rapidly growing population.
- Pressure on social amenities: schools, hospitals, housing, water and roads become overstretched and inadequate for the people.
- Unemployment: the labour force grows faster than the economy can create jobs, raising the level of unemployment and underemployment.
- Low savings and investment: a high number of dependants forces households and government to spend on consumption rather than save, so capital formation is low.
- Falling standard of living: national output is shared among more people, so per-capita income and welfare fall, and food shortages may occur.
Pregunta 52 Informe
The table below shows the percentage age distribution of population of country Y in 2010. The population was 200,000. Use the information in the table to answer the questions that follow.
| Age group (year) | 0 - 18 | 19 - 40 | 41 - 60 | 60 and above |
| percentage distribution pf population | 30% | 35% | 25% | 10% |
(a) Calculate the size of the
i. working population
ii. dependent population
(b) If the population (0 -18) years is increased by 2% and 0.5% of the ages 61 years and above have died, what is the natural increase in the population.
(c) How will you describe the age distribution of the population? Give a reason for your answer..
The total population is 200,000, so each group size is its percentage of 200,000.
(a)(i) Working population is normally taken as ages 19 to 60, that is the 19-40 and 41-60 groups: \((35\%+25\%)\times200{,}000=60\%\times200{,}000=120{,}000\) people.
(a)(ii) Dependent population is ages 0-18 and 60 and above: \((30\%+10\%)\times200{,}000=40\%\times200{,}000=80{,}000\) people.
(b) The 0-18 group is \(30\%\times200{,}000=60{,}000\); a 2% rise adds births of \(0.02\times60{,}000=1{,}200\). The 60-and-above group is \(10\%\times200{,}000=20{,}000\); a 0.5% death rate gives deaths of \(0.005\times20{,}000=100\). Natural increase \(=\text{births}-\text{deaths}=1{,}200-100=1{,}100\) people.
(c) The population is a young (broad-based) population: a large share (40%) is dependent and a heavy proportion is in the younger age groups, giving a high dependency ratio of \(\dfrac{80{,}000}{120{,}000}=0.67\) (about 67%).
Detalles de la respuesta
The total population is 200,000, so each group size is its percentage of 200,000.
(a)(i) Working population is normally taken as ages 19 to 60, that is the 19-40 and 41-60 groups: \((35\%+25\%)\times200{,}000=60\%\times200{,}000=120{,}000\) people.
(a)(ii) Dependent population is ages 0-18 and 60 and above: \((30\%+10\%)\times200{,}000=40\%\times200{,}000=80{,}000\) people.
(b) The 0-18 group is \(30\%\times200{,}000=60{,}000\); a 2% rise adds births of \(0.02\times60{,}000=1{,}200\). The 60-and-above group is \(10\%\times200{,}000=20{,}000\); a 0.5% death rate gives deaths of \(0.005\times20{,}000=100\). Natural increase \(=\text{births}-\text{deaths}=1{,}200-100=1{,}100\) people.
(c) The population is a young (broad-based) population: a large share (40%) is dependent and a heavy proportion is in the younger age groups, giving a high dependency ratio of \(\dfrac{80{,}000}{120{,}000}=0.67\) (about 67%).
Pregunta 53 Informe
The table below shows the cost of production and output of maize. The price of maize is fixed $20.00. Use the information to answer the questions that follow.
| Maize (bags) | Total Variables ($) | Total cost ($) | Total Revenue ($) |
| 0 | 0 | 10 | 0 |
| 1 | 8 | w | 20 |
| 2 | 10 | x | 40 |
| 3 | u | 25 | y |
| 4 | v | 32 | z |
| 5 | 28 | 38 | 100 |
a. what is the value of total cost? Give a reason for your answer.
b. Calculate the values of u,v,w,x,y and z
c. Calculate the profit levels 1 and 4
d. In what market structure is the firm operating? Give a reason for your answer.
Total cost is fixed cost plus total variable cost, \(TC=TFC+TVC\). When output is zero, \(TVC=0\) and \(TC=10\), so the total fixed cost is 10 dollars.
(a) The fixed part of total cost is $10, because it is the cost the firm bears even when output (and therefore variable cost) is zero.
(b) Using \(TC=TVC+10\) and \(TR=\text{price}\times\text{quantity}=20\times Q\):
- \(w=TC\text{ at }1=8+10=18\)
- \(x=TC\text{ at }2=10+10=20\)
- \(u=TVC\text{ at }3=25-10=15\)
- \(v=TVC\text{ at }4=32-10=22\)
- \(y=TR\text{ at }3=20\times3=60\)
- \(z=TR\text{ at }4=20\times4=80\)
| Maize (bags) | TVC ($) | TC ($) | TR ($) |
|---|---|---|---|
| 0 | 0 | 10 | 0 |
| 1 | 8 | 18 | 20 |
| 2 | 10 | 20 | 40 |
| 3 | 15 | 25 | 60 |
| 4 | 22 | 32 | 80 |
| 5 | 28 | 38 | 100 |
(c) Profit \(=TR-TC\). At output 1, profit \(=20-18=\$2\). At output 4, profit \(=80-32=\$48\).
(d) The firm sells every bag at a constant price of $20 no matter how much it produces, so it operates under perfect competition; the constant price means the firm is a price taker facing a perfectly elastic demand.
Detalles de la respuesta
Total cost is fixed cost plus total variable cost, \(TC=TFC+TVC\). When output is zero, \(TVC=0\) and \(TC=10\), so the total fixed cost is 10 dollars.
(a) The fixed part of total cost is $10, because it is the cost the firm bears even when output (and therefore variable cost) is zero.
(b) Using \(TC=TVC+10\) and \(TR=\text{price}\times\text{quantity}=20\times Q\):
- \(w=TC\text{ at }1=8+10=18\)
- \(x=TC\text{ at }2=10+10=20\)
- \(u=TVC\text{ at }3=25-10=15\)
- \(v=TVC\text{ at }4=32-10=22\)
- \(y=TR\text{ at }3=20\times3=60\)
- \(z=TR\text{ at }4=20\times4=80\)
| Maize (bags) | TVC ($) | TC ($) | TR ($) |
|---|---|---|---|
| 0 | 0 | 10 | 0 |
| 1 | 8 | 18 | 20 |
| 2 | 10 | 20 | 40 |
| 3 | 15 | 25 | 60 |
| 4 | 22 | 32 | 80 |
| 5 | 28 | 38 | 100 |
(c) Profit \(=TR-TC\). At output 1, profit \(=20-18=\$2\). At output 4, profit \(=80-32=\$48\).
(d) The firm sells every bag at a constant price of $20 no matter how much it produces, so it operates under perfect competition; the constant price means the firm is a price taker facing a perfectly elastic demand.
Pregunta 54 Informe
(a) What is money?
(b) Outline any three characteristics of money.
(c) Explain an effect of inflation on each of the functions of money.
(a) What is money? Money is anything that is generally acceptable as a medium of exchange and for the settlement of debts. It performs the functions of a medium of exchange, a measure of value, a store of value and a standard of deferred payments.
(b) Three characteristics of money:
- General acceptability - it must be accepted by everyone in payment.
- Durability - it must not wear out or perish quickly.
- Portability - it must be easy to carry about. (Other qualities: divisibility, homogeneity, relative scarcity and difficulty to counterfeit.)
(c) Effect of inflation on each function of money. Inflation is a persistent rise in the general price level, which reduces the value (purchasing power) of money. Its effect on the functions is:
- Medium of exchange: as prices rise, people lose confidence in money and may become reluctant to accept it, in extreme cases returning to barter or foreign currency.
- Measure (unit) of value: money becomes an unreliable yardstick because the same amount buys less over time, so prices must be constantly adjusted and comparisons become difficult.
- Store of value: money loses value when kept, so savers are discouraged; wealth held as cash falls in real terms.
- Standard of deferred payment: lenders and creditors lose because the money repaid in future has less purchasing power than the money originally lent, discouraging lending and long-term contracts.
Detalles de la respuesta
(a) What is money? Money is anything that is generally acceptable as a medium of exchange and for the settlement of debts. It performs the functions of a medium of exchange, a measure of value, a store of value and a standard of deferred payments.
(b) Three characteristics of money:
- General acceptability - it must be accepted by everyone in payment.
- Durability - it must not wear out or perish quickly.
- Portability - it must be easy to carry about. (Other qualities: divisibility, homogeneity, relative scarcity and difficulty to counterfeit.)
(c) Effect of inflation on each function of money. Inflation is a persistent rise in the general price level, which reduces the value (purchasing power) of money. Its effect on the functions is:
- Medium of exchange: as prices rise, people lose confidence in money and may become reluctant to accept it, in extreme cases returning to barter or foreign currency.
- Measure (unit) of value: money becomes an unreliable yardstick because the same amount buys less over time, so prices must be constantly adjusted and comparisons become difficult.
- Store of value: money loses value when kept, so savers are discouraged; wealth held as cash falls in real terms.
- Standard of deferred payment: lenders and creditors lose because the money repaid in future has less purchasing power than the money originally lent, discouraging lending and long-term contracts.
Pregunta 55 Informe
(a) State Professor Robbins’ definition of Economics.
(b) Explain the following concepts:
(i) opportunity cost;
(ii) scale of preference;
(iii) production possibility curve.
(c) Outline three reasons for the study of Economics as a Subject.
(a) Robbins' definition. Professor Lionel Robbins defined Economics as "the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses." It stresses scarcity and choice.
(b) Concepts:
- (i) Opportunity cost. This is the real cost of a choice measured as the next best alternative that is given up (forgone) in order to have it. For example, if a farmer uses his land to grow maize instead of yam, the opportunity cost of the maize is the yam forgone.
- (ii) Scale of preference. This is a list of an individual's wants arranged in order of importance, with the most pressing want placed first. It guides choice because limited resources are used to satisfy the most urgent wants before the less urgent ones.
- (iii) Production possibility curve (PPC). This is a curve that shows the various combinations of two goods that a country can produce when its resources are fully and efficiently employed. Points on the curve show efficient production, points inside show under-utilisation of resources, and points outside are unattainable with current resources. Its downward slope illustrates opportunity cost, because producing more of one good means producing less of the other.
(c) Three reasons for studying Economics:
- It helps individuals to make rational choices in using their scarce resources.
- It provides knowledge and skills for careers and for managing personal and business finances.
- It helps citizens understand and evaluate government economic policies and national issues such as inflation and unemployment.
Detalles de la respuesta
(a) Robbins' definition. Professor Lionel Robbins defined Economics as "the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses." It stresses scarcity and choice.
(b) Concepts:
- (i) Opportunity cost. This is the real cost of a choice measured as the next best alternative that is given up (forgone) in order to have it. For example, if a farmer uses his land to grow maize instead of yam, the opportunity cost of the maize is the yam forgone.
- (ii) Scale of preference. This is a list of an individual's wants arranged in order of importance, with the most pressing want placed first. It guides choice because limited resources are used to satisfy the most urgent wants before the less urgent ones.
- (iii) Production possibility curve (PPC). This is a curve that shows the various combinations of two goods that a country can produce when its resources are fully and efficiently employed. Points on the curve show efficient production, points inside show under-utilisation of resources, and points outside are unattainable with current resources. Its downward slope illustrates opportunity cost, because producing more of one good means producing less of the other.
(c) Three reasons for studying Economics:
- It helps individuals to make rational choices in using their scarce resources.
- It provides knowledge and skills for careers and for managing personal and business finances.
- It helps citizens understand and evaluate government economic policies and national issues such as inflation and unemployment.
Pregunta 56 Informe
(a) What is unemployment of labour?.
(b) With an example each, explain the following types of unemployment:
(i) frictional unemployment;
(ii) structural unemployment;
(iii) seasonal unemployment.
(c) Outline any four causes of unemployment in a country.
(a) Unemployment of labour is a situation in which people who are able and willing to work at the prevailing wage rate are unable to find paid employment.
(b) Types of unemployment:
- (i) Frictional unemployment occurs when workers are temporarily out of work while moving between jobs or searching for a first job. Example: a graduate who has left one firm and is still searching for a better job.
- (ii) Structural unemployment occurs when there is a permanent change in the structure of the economy or in technology, so that workers' skills are no longer needed. Example: typists who lost their jobs when computers replaced typewriters.
- (iii) Seasonal unemployment occurs when workers are laid off during the off-season of an activity that operates only at certain times of the year. Example: farm labourers who are idle during the dry season when there is no planting or harvesting.
(c) Four causes of unemployment:
- Rapid population growth that produces more job seekers than the economy can absorb.
- Low level of industrial and economic activity (few industries), so few jobs are created.
- Use of capital-intensive (labour-saving) technology that reduces the number of workers needed.
- Defective education system that produces graduates whose skills do not match the needs of employers.
Other valid causes include a general fall in aggregate demand (economic recession) and rural to urban migration.
Detalles de la respuesta
(a) Unemployment of labour is a situation in which people who are able and willing to work at the prevailing wage rate are unable to find paid employment.
(b) Types of unemployment:
- (i) Frictional unemployment occurs when workers are temporarily out of work while moving between jobs or searching for a first job. Example: a graduate who has left one firm and is still searching for a better job.
- (ii) Structural unemployment occurs when there is a permanent change in the structure of the economy or in technology, so that workers' skills are no longer needed. Example: typists who lost their jobs when computers replaced typewriters.
- (iii) Seasonal unemployment occurs when workers are laid off during the off-season of an activity that operates only at certain times of the year. Example: farm labourers who are idle during the dry season when there is no planting or harvesting.
(c) Four causes of unemployment:
- Rapid population growth that produces more job seekers than the economy can absorb.
- Low level of industrial and economic activity (few industries), so few jobs are created.
- Use of capital-intensive (labour-saving) technology that reduces the number of workers needed.
- Defective education system that produces graduates whose skills do not match the needs of employers.
Other valid causes include a general fall in aggregate demand (economic recession) and rural to urban migration.
Pregunta 57 Informe
(a) i. Define distribution of goods.
ii. Illustrate the normal chain of distribution of goods.
b. Describe a consumers' cooperative society.
c. Outline any four roles performed by a consumers' cooperative society
(a)(i) Distribution of goods is the process of moving goods from the producer to the final consumer through a chain of middlemen. It bridges the gap between production and consumption in place and time.
(a)(ii) Normal chain of distribution:
\[ \text{Producer} \rightarrow \text{Wholesaler} \rightarrow \text{Retailer} \rightarrow \text{Consumer} \]The producer manufactures the goods, the wholesaler buys in bulk and breaks them into smaller lots, the retailer sells in small quantities near the consumer, and the consumer finally uses the goods.
(b) Consumers' co-operative society. This is a voluntary association of consumers who pool their funds to buy goods in bulk and sell them to members (and the public) at fair prices, sharing any surplus (profit) among members as a dividend usually in proportion to their purchases (patronage). It is owned and democratically controlled by its members on the principle of one member, one vote.
(c) Four roles of a consumers' co-operative society:
- It supplies goods to members at fair and reasonable prices, eliminating exploitation by middlemen.
- It buys in bulk directly from producers, enjoying economies of scale and passing savings to members.
- It shares its surplus among members as dividends (bonus), raising their real incomes.
- It protects consumers by supplying genuine, good-quality goods and gives members the chance to save.
Detalles de la respuesta
(a)(i) Distribution of goods is the process of moving goods from the producer to the final consumer through a chain of middlemen. It bridges the gap between production and consumption in place and time.
(a)(ii) Normal chain of distribution:
\[ \text{Producer} \rightarrow \text{Wholesaler} \rightarrow \text{Retailer} \rightarrow \text{Consumer} \]The producer manufactures the goods, the wholesaler buys in bulk and breaks them into smaller lots, the retailer sells in small quantities near the consumer, and the consumer finally uses the goods.
(b) Consumers' co-operative society. This is a voluntary association of consumers who pool their funds to buy goods in bulk and sell them to members (and the public) at fair prices, sharing any surplus (profit) among members as a dividend usually in proportion to their purchases (patronage). It is owned and democratically controlled by its members on the principle of one member, one vote.
(c) Four roles of a consumers' co-operative society:
- It supplies goods to members at fair and reasonable prices, eliminating exploitation by middlemen.
- It buys in bulk directly from producers, enjoying economies of scale and passing savings to members.
- It shares its surplus among members as dividends (bonus), raising their real incomes.
- It protects consumers by supplying genuine, good-quality goods and gives members the chance to save.
Pregunta 58 Informe
(a) Define joint venture.
(b) Identify any three merits of a private company over a partnership.
(c) State any three sources of finance to a public enterprise.
(a) Joint venture. A joint venture is a business arrangement in which two or more independent firms (or a private firm and the government) pool resources, skills and capital to carry out a specific business project, sharing the risks, control and profits, while remaining separate organisations.
(b) Three merits of a private (limited liability) company over a partnership:
- Limited liability. Shareholders can lose only the amount they invested, whereas partners have unlimited liability and can lose personal property.
- Larger capital. A company can raise more capital by issuing shares to up to fifty members, while a partnership is limited to few partners.
- Continuity of existence. A company has perpetual succession and continues despite the death or withdrawal of a member, whereas a partnership may dissolve when a partner dies or leaves.
(Other valid merits: separate legal personality, and easier transfer of ownership through shares.)
(c) Three sources of finance to a public enterprise:
- Government grants and subventions from the national budget.
- Loans from banks and other financial institutions (internal and external).
- Revenue (ploughed-back profits) earned from the sale of its own goods and services.
(Other valid sources: issue of bonds/stocks and aid or loans from international agencies.)
Detalles de la respuesta
(a) Joint venture. A joint venture is a business arrangement in which two or more independent firms (or a private firm and the government) pool resources, skills and capital to carry out a specific business project, sharing the risks, control and profits, while remaining separate organisations.
(b) Three merits of a private (limited liability) company over a partnership:
- Limited liability. Shareholders can lose only the amount they invested, whereas partners have unlimited liability and can lose personal property.
- Larger capital. A company can raise more capital by issuing shares to up to fifty members, while a partnership is limited to few partners.
- Continuity of existence. A company has perpetual succession and continues despite the death or withdrawal of a member, whereas a partnership may dissolve when a partner dies or leaves.
(Other valid merits: separate legal personality, and easier transfer of ownership through shares.)
(c) Three sources of finance to a public enterprise:
- Government grants and subventions from the national budget.
- Loans from banks and other financial institutions (internal and external).
- Revenue (ploughed-back profits) earned from the sale of its own goods and services.
(Other valid sources: issue of bonds/stocks and aid or loans from international agencies.)
Pregunta 59 Informe
The extract from a country's balance of payments account is shown below
| Item | Imports ($ million) | Export ($) |
| Agricultural products | - | 200 |
| Mineral products | - | 300 |
| Consumer goods | 250 | - |
| Capital goods | 400 | - |
| Insurance | 50 | 25 |
| banking | 75 | 30 |
| Transportation | 85 | 25 |
| Loans | 150 | 60 |
Using the table above, calculate the:
(a) balance of trade
(b) invisible trade balance
(c) balance on current account
Visible (merchandise) trade covers physical goods; invisible trade covers services and other transfers. All figures are in $ million.
(a) Balance of trade (visible exports minus visible imports): visible exports \(=200+300=500\); visible imports \(=250+400=650\). \[\text{Balance of trade}=500-650=-150.\] This is a trade deficit of $150 million.
(b) Invisible trade balance (invisible receipts minus invisible payments): receipts \(=25+30+25+60=140\); payments \(=50+75+85+150=360\). \[\text{Invisible balance}=140-360=-220.\] This is an invisible deficit of $220 million.
(c) Balance on current account (balance of trade plus invisible balance): \[-150+(-220)=-370.\] The current account has a deficit of $370 million.
Detalles de la respuesta
Visible (merchandise) trade covers physical goods; invisible trade covers services and other transfers. All figures are in $ million.
(a) Balance of trade (visible exports minus visible imports): visible exports \(=200+300=500\); visible imports \(=250+400=650\). \[\text{Balance of trade}=500-650=-150.\] This is a trade deficit of $150 million.
(b) Invisible trade balance (invisible receipts minus invisible payments): receipts \(=25+30+25+60=140\); payments \(=50+75+85+150=360\). \[\text{Invisible balance}=140-360=-220.\] This is an invisible deficit of $220 million.
(c) Balance on current account (balance of trade plus invisible balance): \[-150+(-220)=-370.\] The current account has a deficit of $370 million.
Pregunta 60 Informe
(a) Define labour force.
(b) Explain the following concepts with an example each:
(i) occupational mobility of labour;
(ii) geographical mobility of labour.
(c) Outline four factors that can influence the size of the labour force in a country
(a) Labour force
The labour force is the part of a country’s population that is of working age and is either employed or actively seeking employment.
(b)(i) Occupational mobility of labour
Occupational mobility of labour is the ease with which a worker moves from one occupation or job to another. For example, a bank worker who leaves banking to become a teacher has shown occupational mobility.
(b)(ii) Geographical mobility of labour
Geographical mobility of labour is the ease with which a worker moves from one geographical location to another in order to work. For example, a teacher who moves from Banjul to Monrovia for employment has shown geographical mobility.
(c) Factors influencing the size of the labour force
- Total population: A country with a larger population is likely to have a larger labour force, other things being equal.
- School-leaving age: Reducing the official school-leaving age increases the number of young people available for work and therefore increases the labour force.
- Retirement age: Raising the retirement age, for example from 60 to 65 years, keeps people in employment for longer and increases the labour force.
- Willingness to work: The labour force will be larger where a high proportion of working-age people are willing and able to work.
- Participation of women: Increased participation of women in paid employment increases the size of the labour force, while more full-time housewives may reduce it.
- Education and training: When more people remain in full-time education or training, fewer people are immediately available for work, thereby reducing the labour force.
- Health and disability: A high proportion of sick or disabled working-age people reduces the number able to work and hence reduces the labour force.
- Age structure of the population: A population with a high proportion of people within the working-age group will have a relatively large labour force.
Detalles de la respuesta
(a) Labour force
The labour force is the part of a country’s population that is of working age and is either employed or actively seeking employment.
(b)(i) Occupational mobility of labour
Occupational mobility of labour is the ease with which a worker moves from one occupation or job to another. For example, a bank worker who leaves banking to become a teacher has shown occupational mobility.
(b)(ii) Geographical mobility of labour
Geographical mobility of labour is the ease with which a worker moves from one geographical location to another in order to work. For example, a teacher who moves from Banjul to Monrovia for employment has shown geographical mobility.
(c) Factors influencing the size of the labour force
- Total population: A country with a larger population is likely to have a larger labour force, other things being equal.
- School-leaving age: Reducing the official school-leaving age increases the number of young people available for work and therefore increases the labour force.
- Retirement age: Raising the retirement age, for example from 60 to 65 years, keeps people in employment for longer and increases the labour force.
- Willingness to work: The labour force will be larger where a high proportion of working-age people are willing and able to work.
- Participation of women: Increased participation of women in paid employment increases the size of the labour force, while more full-time housewives may reduce it.
- Education and training: When more people remain in full-time education or training, fewer people are immediately available for work, thereby reducing the labour force.
- Health and disability: A high proportion of sick or disabled working-age people reduces the number able to work and hence reduces the labour force.
- Age structure of the population: A population with a high proportion of people within the working-age group will have a relatively large labour force.
Pregunta 61 Informe
The diagram above represents the equilibrium position of a firm in a perfectly competitive industry. Study it carefully and answer the questions that follow.
(a) i. At what level of output and prices is the firm in equilibrium?
ii. Calculate the firm's profit in equilibrium
iii. What type of profits is it?
(b) i. Why is the average revenue (AR) function horizontal?
(c) State any two ways in which marginal cost (MC) and average total cost (ATC) are related.
(a)(i) Equilibrium output and price
A firm in a perfectly competitive market maximises profit where \(MC = MR\) with \(MC\) rising. On the diagram the rising part of the \(MC\) curve cuts the \(AR = MR\) line at an output of 50 kg and a price of $20. So the firm is in equilibrium at \(Q = 50\) kg and \(P = \$20\).
(a)(ii) Profit in equilibrium
At \(Q = 50\) kg, average revenue \(= \$20\) and average total cost, read off the \(ATC\) curve, \(= \$12\).
\[\text{Profit per unit} = AR - ATC = \$20 - \$12 = \$8\]
\[\text{Total profit} = (AR - ATC)\times Q = \$8 \times 50 = \$400\]
(a)(iii) Type of profit
Since \(AR > ATC\), the firm earns supernormal (abnormal) profit of $400. In perfect competition this survives only in the short run; in the long run new firms are attracted in, supply rises, price falls to the level of \(ATC\), and only normal profit remains.
(b)(i) Why the AR function is horizontal
The firm is one of very many small sellers of an identical product, so it is a price taker. It cannot influence the price and can sell any quantity it wishes at the single ruling market price of $20. Because every extra unit is sold at that same unchanged price, \(AR = MR = \) price, and the curve is a horizontal straight line.
(c) Two ways MC and ATC are related
- The \(MC\) curve cuts the \(ATC\) curve at the lowest (minimum) point of \(ATC\); on this diagram that is at about $10 and 40 kg.
- When \(MC < ATC\), the \(ATC\) is falling; when \(MC > ATC\), the \(ATC\) is rising. Marginal cost pulls the average down while it lies below it and pushes the average up once it lies above it.
Detalles de la respuesta
(a)(i) Equilibrium output and price
A firm in a perfectly competitive market maximises profit where \(MC = MR\) with \(MC\) rising. On the diagram the rising part of the \(MC\) curve cuts the \(AR = MR\) line at an output of 50 kg and a price of $20. So the firm is in equilibrium at \(Q = 50\) kg and \(P = \$20\).
(a)(ii) Profit in equilibrium
At \(Q = 50\) kg, average revenue \(= \$20\) and average total cost, read off the \(ATC\) curve, \(= \$12\).
\[\text{Profit per unit} = AR - ATC = \$20 - \$12 = \$8\]
\[\text{Total profit} = (AR - ATC)\times Q = \$8 \times 50 = \$400\]
(a)(iii) Type of profit
Since \(AR > ATC\), the firm earns supernormal (abnormal) profit of $400. In perfect competition this survives only in the short run; in the long run new firms are attracted in, supply rises, price falls to the level of \(ATC\), and only normal profit remains.
(b)(i) Why the AR function is horizontal
The firm is one of very many small sellers of an identical product, so it is a price taker. It cannot influence the price and can sell any quantity it wishes at the single ruling market price of $20. Because every extra unit is sold at that same unchanged price, \(AR = MR = \) price, and the curve is a horizontal straight line.
(c) Two ways MC and ATC are related
- The \(MC\) curve cuts the \(ATC\) curve at the lowest (minimum) point of \(ATC\); on this diagram that is at about $10 and 40 kg.
- When \(MC < ATC\), the \(ATC\) is falling; when \(MC > ATC\), the \(ATC\) is rising. Marginal cost pulls the average down while it lies below it and pushes the average up once it lies above it.
Pregunta 62 Informe
The extract from a country’s balance of payments account is shown below.
| Item | Import ($ million) | Export ($ million) |
| Agricultural products | ------ | 200 |
| Mineral products | ----- | 300 |
| Consumer goods | 250 | ---- |
| Capital goods | 400 | ---- |
| Insurance | 50 | 25 |
| Banking | 75 | 30 |
| Transportation | 85 | 25 |
| Loans | 150 | 60 |
Using the table above, calculate the:
(a) Balance of trade;
(b) Invisible trade balance;
(c) Balance on current account.
Visible (merchandise) trade covers physical goods; invisible trade covers services and other transfers. All figures are in $ million.
(a) Balance of trade (visible exports minus visible imports): visible exports \(=200+300=500\); visible imports \(=250+400=650\). \[\text{Balance of trade}=500-650=-150.\] This is a trade deficit of $150 million.
(b) Invisible trade balance (invisible receipts minus invisible payments): receipts \(=25+30+25+60=140\); payments \(=50+75+85+150=360\). \[\text{Invisible balance}=140-360=-220.\] This is an invisible deficit of $220 million.
(c) Balance on current account (balance of trade plus invisible balance): \[-150+(-220)=-370.\] The current account has a deficit of $370 million.
Detalles de la respuesta
Visible (merchandise) trade covers physical goods; invisible trade covers services and other transfers. All figures are in $ million.
(a) Balance of trade (visible exports minus visible imports): visible exports \(=200+300=500\); visible imports \(=250+400=650\). \[\text{Balance of trade}=500-650=-150.\] This is a trade deficit of $150 million.
(b) Invisible trade balance (invisible receipts minus invisible payments): receipts \(=25+30+25+60=140\); payments \(=50+75+85+150=360\). \[\text{Invisible balance}=140-360=-220.\] This is an invisible deficit of $220 million.
(c) Balance on current account (balance of trade plus invisible balance): \[-150+(-220)=-370.\] The current account has a deficit of $370 million.
Pregunta 63 Informe
(a) What is economic integration?
(b) Distinguish between a free trade area and a customs union.
(c) Describe two advantages and two disadvantages of free trade area
(a) Economic integration is an arrangement in which two or more countries agree to reduce or remove trade barriers among themselves and to co-operate economically, in order to enjoy the benefits of a larger combined market. Examples include ECOWAS and the European Union.
(b) Free trade area versus customs union.
| Free trade area | Customs union |
|---|---|
| Member countries remove trade barriers (tariffs and quotas) among themselves. | Members also remove trade barriers among themselves. |
| Each member keeps its own separate tariff on goods from non-member (outside) countries. | Members adopt a common external tariff against non-member countries. |
In short, a customs union is a free trade area plus a common external tariff.
(c) Free trade area - advantages and disadvantages.
Two advantages:
- Larger market. Producers can sell to a wider combined market, encouraging economies of scale and specialisation.
- Cheaper goods and wider choice. Removing tariffs among members lowers prices and gives consumers a greater variety of goods.
Two disadvantages:
- Loss of government revenue from the tariffs that used to be charged on trade between members.
- Harm to infant and weak domestic industries, which may be unable to compete with stronger firms from partner countries, and possible trade deflection because members keep different external tariffs.
Detalles de la respuesta
(a) Economic integration is an arrangement in which two or more countries agree to reduce or remove trade barriers among themselves and to co-operate economically, in order to enjoy the benefits of a larger combined market. Examples include ECOWAS and the European Union.
(b) Free trade area versus customs union.
| Free trade area | Customs union |
|---|---|
| Member countries remove trade barriers (tariffs and quotas) among themselves. | Members also remove trade barriers among themselves. |
| Each member keeps its own separate tariff on goods from non-member (outside) countries. | Members adopt a common external tariff against non-member countries. |
In short, a customs union is a free trade area plus a common external tariff.
(c) Free trade area - advantages and disadvantages.
Two advantages:
- Larger market. Producers can sell to a wider combined market, encouraging economies of scale and specialisation.
- Cheaper goods and wider choice. Removing tariffs among members lowers prices and gives consumers a greater variety of goods.
Two disadvantages:
- Loss of government revenue from the tariffs that used to be charged on trade between members.
- Harm to infant and weak domestic industries, which may be unable to compete with stronger firms from partner countries, and possible trade deflection because members keep different external tariffs.
Pregunta 64 Informe
The diagram below represents the equilibrium position of a firm in a perfectly competitive industry. Study it and answer the questions that follow.
(a) i. At what level of output and prices is the firm in equilibrium?
ii. Calculate the firm's profit in equilibrium
iii. What type of profits is it?
(b) i. Why is the average revenue (AR) function horizontal?
(c) State any two ways in which marginal cost (MC) and average total cost (ATC) are related.
Note on the source diagram. The provided image is incomplete (truncated at the lower part), so the quantity axis and the exact equilibrium output cannot be read with certainty. From the visible portion the axis is labelled Cost/Price, the curves shown are a U-shaped MC and a U-shaped ATC (average total cost), and there is a single horizontal line labelled \(AR = MR\) at the price level $20. Further guide values of $12 and $10 are marked lower on the price axis. Because the firm's demand line \(AR = MR\) is horizontal, the diagram is that of a firm in perfect competition (a price taker). The following gives the method a candidate should apply.
Step 1: Establish the equilibrium output. A profit-maximising firm produces where marginal cost equals marginal revenue. Here \(MR = \$20\), so equilibrium is where the rising MC curve cuts the horizontal \(AR = MR\) line at the price of \(\$20\). Call this output \(Q^{*}\) (the point directly below the MC = MR intersection on the quantity axis).
Step 2: Read the price and average cost at \(Q^{*}\). At the equilibrium output:
- Average revenue (price) \(= AR = \$20\).
- Average total cost \(= ATC\), read where the vertical line at \(Q^{*}\) meets the ATC curve. Using the marked guide value, \(ATC \approx \$12\) at that output (with the minimum of ATC near \(\$10\)).
Step 3: Determine the type and size of profit. Compare price with average cost:
\[ \text{Profit per unit} = AR - ATC = \$20 - \$12 = \$8 \]Since \(AR (\$20) > ATC (\$12)\), the firm earns supernormal (abnormal) profit. The total supernormal profit is the rectangle of height \((AR - ATC)\) and width \(Q^{*}\):
\[ \text{Total profit} = (AR - ATC)\times Q^{*} = \$8 \times Q^{*} \]where \(Q^{*}\) is the equilibrium quantity. If instead price had equalled minimum ATC the firm would earn only normal profit, and if price were below minimum ATC it would make a loss.
Step 4: Identify the market. Because \(AR = MR\) is a horizontal straight line, the firm faces a perfectly elastic demand and is a price taker, which identifies the market as perfect competition.
Because the source diagram is incomplete, the exact equilibrium quantity and the precise ATC value at that output cannot be confirmed; the method above is correct and the numerical profit follows once \(Q^{*}\) is read from a complete diagram.
Detalles de la respuesta
Note on the source diagram. The provided image is incomplete (truncated at the lower part), so the quantity axis and the exact equilibrium output cannot be read with certainty. From the visible portion the axis is labelled Cost/Price, the curves shown are a U-shaped MC and a U-shaped ATC (average total cost), and there is a single horizontal line labelled \(AR = MR\) at the price level $20. Further guide values of $12 and $10 are marked lower on the price axis. Because the firm's demand line \(AR = MR\) is horizontal, the diagram is that of a firm in perfect competition (a price taker). The following gives the method a candidate should apply.
Step 1: Establish the equilibrium output. A profit-maximising firm produces where marginal cost equals marginal revenue. Here \(MR = \$20\), so equilibrium is where the rising MC curve cuts the horizontal \(AR = MR\) line at the price of \(\$20\). Call this output \(Q^{*}\) (the point directly below the MC = MR intersection on the quantity axis).
Step 2: Read the price and average cost at \(Q^{*}\). At the equilibrium output:
- Average revenue (price) \(= AR = \$20\).
- Average total cost \(= ATC\), read where the vertical line at \(Q^{*}\) meets the ATC curve. Using the marked guide value, \(ATC \approx \$12\) at that output (with the minimum of ATC near \(\$10\)).
Step 3: Determine the type and size of profit. Compare price with average cost:
\[ \text{Profit per unit} = AR - ATC = \$20 - \$12 = \$8 \]Since \(AR (\$20) > ATC (\$12)\), the firm earns supernormal (abnormal) profit. The total supernormal profit is the rectangle of height \((AR - ATC)\) and width \(Q^{*}\):
\[ \text{Total profit} = (AR - ATC)\times Q^{*} = \$8 \times Q^{*} \]where \(Q^{*}\) is the equilibrium quantity. If instead price had equalled minimum ATC the firm would earn only normal profit, and if price were below minimum ATC it would make a loss.
Step 4: Identify the market. Because \(AR = MR\) is a horizontal straight line, the firm faces a perfectly elastic demand and is a price taker, which identifies the market as perfect competition.
Because the source diagram is incomplete, the exact equilibrium quantity and the precise ATC value at that output cannot be confirmed; the method above is correct and the numerical profit follows once \(Q^{*}\) is read from a complete diagram.
Pregunta 65 Informe
(a) Distinguish between the following pairs of concepts:
(i) elastic demand and inelastic demand
(ii) income elasticity of demand and cross elasticity of demand.
(b) Using diagrams, explain how an increase in price will affect the total revenue of a producer if the demand for his product is:
(i) price elastic;
(ii) price elastic
(a)(i) Elastic vs inelastic demand.
| Elastic demand | Inelastic demand |
|---|---|
| A small change in price causes a more than proportionate change in quantity demanded. | A change in price causes a less than proportionate change in quantity demanded. |
| Elasticity coefficient is greater than one \( (e_d > 1) \). | Elasticity coefficient is less than one \( (e_d < 1) \). |
| Typical of luxuries and goods with many substitutes. | Typical of necessities and goods with few substitutes. |
(a)(ii) Income elasticity vs cross elasticity of demand.
- Income elasticity of demand measures the responsiveness of quantity demanded of a good to a change in consumers' income: \[ e_y = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in income}} \]
- Cross elasticity of demand measures the responsiveness of quantity demanded of one good (X) to a change in the price of another good (Y): \[ e_{xy} = \frac{\% \text{ change in quantity demanded of X}}{\% \text{ change in price of Y}} \] It is positive for substitutes and negative for complements.
(b) Effect of a price increase on total revenue. Total revenue is \( TR = P \times Q \).
- (i) If demand is price elastic: a rise in price causes a larger proportionate fall in quantity demanded, so total revenue falls. On a diagram, the demand curve is fairly flat (gentle slope); the revenue lost from selling far fewer units outweighs the revenue gained from the higher price.
- (ii) If demand is price inelastic: a rise in price causes only a small proportionate fall in quantity demanded, so total revenue rises. On a diagram, the demand curve is fairly steep; the higher price more than makes up for the small drop in sales.
Examination reminder: the second part of (b) reads "price elastic" twice in the paper, but the intended contrast is elastic versus inelastic, which is answered above.
Detalles de la respuesta
(a)(i) Elastic vs inelastic demand.
| Elastic demand | Inelastic demand |
|---|---|
| A small change in price causes a more than proportionate change in quantity demanded. | A change in price causes a less than proportionate change in quantity demanded. |
| Elasticity coefficient is greater than one \( (e_d > 1) \). | Elasticity coefficient is less than one \( (e_d < 1) \). |
| Typical of luxuries and goods with many substitutes. | Typical of necessities and goods with few substitutes. |
(a)(ii) Income elasticity vs cross elasticity of demand.
- Income elasticity of demand measures the responsiveness of quantity demanded of a good to a change in consumers' income: \[ e_y = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in income}} \]
- Cross elasticity of demand measures the responsiveness of quantity demanded of one good (X) to a change in the price of another good (Y): \[ e_{xy} = \frac{\% \text{ change in quantity demanded of X}}{\% \text{ change in price of Y}} \] It is positive for substitutes and negative for complements.
(b) Effect of a price increase on total revenue. Total revenue is \( TR = P \times Q \).
- (i) If demand is price elastic: a rise in price causes a larger proportionate fall in quantity demanded, so total revenue falls. On a diagram, the demand curve is fairly flat (gentle slope); the revenue lost from selling far fewer units outweighs the revenue gained from the higher price.
- (ii) If demand is price inelastic: a rise in price causes only a small proportionate fall in quantity demanded, so total revenue rises. On a diagram, the demand curve is fairly steep; the higher price more than makes up for the small drop in sales.
Examination reminder: the second part of (b) reads "price elastic" twice in the paper, but the intended contrast is elastic versus inelastic, which is answered above.
Pregunta 66 Informe
a. Define a joint venture.
b. identify any three merits of a private company over a partnership.
c. State any three sources of finance to a public enterprise
(a) Joint venture. A joint venture is a business arrangement in which two or more independent firms (or a private firm and the government) pool resources, skills and capital to carry out a specific business project, sharing the risks, control and profits, while remaining separate organisations.
(b) Three merits of a private (limited liability) company over a partnership:
- Limited liability. Shareholders can lose only the amount they invested, whereas partners have unlimited liability and can lose personal property.
- Larger capital. A company can raise more capital by issuing shares to up to fifty members, while a partnership is limited to few partners.
- Continuity of existence. A company has perpetual succession and continues despite the death or withdrawal of a member, whereas a partnership may dissolve when a partner dies or leaves.
(Other valid merits: separate legal personality, and easier transfer of ownership through shares.)
(c) Three sources of finance to a public enterprise:
- Government grants and subventions from the national budget.
- Loans from banks and other financial institutions (internal and external).
- Revenue (ploughed-back profits) earned from the sale of its own goods and services.
(Other valid sources: issue of bonds/stocks and aid or loans from international agencies.)
Detalles de la respuesta
(a) Joint venture. A joint venture is a business arrangement in which two or more independent firms (or a private firm and the government) pool resources, skills and capital to carry out a specific business project, sharing the risks, control and profits, while remaining separate organisations.
(b) Three merits of a private (limited liability) company over a partnership:
- Limited liability. Shareholders can lose only the amount they invested, whereas partners have unlimited liability and can lose personal property.
- Larger capital. A company can raise more capital by issuing shares to up to fifty members, while a partnership is limited to few partners.
- Continuity of existence. A company has perpetual succession and continues despite the death or withdrawal of a member, whereas a partnership may dissolve when a partner dies or leaves.
(Other valid merits: separate legal personality, and easier transfer of ownership through shares.)
(c) Three sources of finance to a public enterprise:
- Government grants and subventions from the national budget.
- Loans from banks and other financial institutions (internal and external).
- Revenue (ploughed-back profits) earned from the sale of its own goods and services.
(Other valid sources: issue of bonds/stocks and aid or loans from international agencies.)
Pregunta 67 Informe
(a) What is an industry?
(b) Explain the following:
i. division of labor
ii. economies of scale
(c) Outline any four internal economies of scale.
(a) Industry. An industry is a group of firms engaged in the production of the same or similar kinds of goods or services (for example, the textile industry or the banking industry).
(b) Concepts:
- (i) Division of labour is the splitting of a production process into separate tasks so that each worker specialises in one particular task rather than doing the whole job. It raises output through greater skill and speed.
- (ii) Economies of scale are the cost advantages (falling average cost per unit) that a firm enjoys as it expands its scale of production and produces on a larger scale.
(c) Four internal economies of scale:
- Technical economies: a large firm can use large, specialised and more efficient machines, lowering unit cost.
- Managerial economies: a big firm can employ specialist managers for each department, improving efficiency.
- Marketing (commercial) economies: it can buy raw materials in bulk at discounts and spread selling and advertising costs over more units.
- Financial economies: a large firm can borrow more easily and at lower interest rates because it is seen as more creditworthy.
(Other valid internal economies: risk-bearing economies through diversification and research economies.)
Detalles de la respuesta
(a) Industry. An industry is a group of firms engaged in the production of the same or similar kinds of goods or services (for example, the textile industry or the banking industry).
(b) Concepts:
- (i) Division of labour is the splitting of a production process into separate tasks so that each worker specialises in one particular task rather than doing the whole job. It raises output through greater skill and speed.
- (ii) Economies of scale are the cost advantages (falling average cost per unit) that a firm enjoys as it expands its scale of production and produces on a larger scale.
(c) Four internal economies of scale:
- Technical economies: a large firm can use large, specialised and more efficient machines, lowering unit cost.
- Managerial economies: a big firm can employ specialist managers for each department, improving efficiency.
- Marketing (commercial) economies: it can buy raw materials in bulk at discounts and spread selling and advertising costs over more units.
- Financial economies: a large firm can borrow more easily and at lower interest rates because it is seen as more creditworthy.
(Other valid internal economies: risk-bearing economies through diversification and research economies.)
Pregunta 68 Informe
(a) (i) Define distribution of goods.
(ii) Illustrate the normal chain of distribution of goods.
(b) Describe a consumers? cooperative society.
(c) Outline any four roles performed by a consumers? cooperative society
(a)(i) Distribution of goods is the process of moving goods from the producer to the final consumer through a chain of middlemen. It bridges the gap between production and consumption in place and time.
(a)(ii) Normal chain of distribution:
\[ \text{Producer} \rightarrow \text{Wholesaler} \rightarrow \text{Retailer} \rightarrow \text{Consumer} \]The producer manufactures the goods, the wholesaler buys in bulk and breaks them into smaller lots, the retailer sells in small quantities near the consumer, and the consumer finally uses the goods.
(b) Consumers' co-operative society. This is a voluntary association of consumers who pool their funds to buy goods in bulk and sell them to members (and the public) at fair prices, sharing any surplus (profit) among members as a dividend usually in proportion to their purchases (patronage). It is owned and democratically controlled by its members on the principle of one member, one vote.
(c) Four roles of a consumers' co-operative society:
- It supplies goods to members at fair and reasonable prices, eliminating exploitation by middlemen.
- It buys in bulk directly from producers, enjoying economies of scale and passing savings to members.
- It shares its surplus among members as dividends (bonus), raising their real incomes.
- It protects consumers by supplying genuine, good-quality goods and gives members the chance to save.
Detalles de la respuesta
(a)(i) Distribution of goods is the process of moving goods from the producer to the final consumer through a chain of middlemen. It bridges the gap between production and consumption in place and time.
(a)(ii) Normal chain of distribution:
\[ \text{Producer} \rightarrow \text{Wholesaler} \rightarrow \text{Retailer} \rightarrow \text{Consumer} \]The producer manufactures the goods, the wholesaler buys in bulk and breaks them into smaller lots, the retailer sells in small quantities near the consumer, and the consumer finally uses the goods.
(b) Consumers' co-operative society. This is a voluntary association of consumers who pool their funds to buy goods in bulk and sell them to members (and the public) at fair prices, sharing any surplus (profit) among members as a dividend usually in proportion to their purchases (patronage). It is owned and democratically controlled by its members on the principle of one member, one vote.
(c) Four roles of a consumers' co-operative society:
- It supplies goods to members at fair and reasonable prices, eliminating exploitation by middlemen.
- It buys in bulk directly from producers, enjoying economies of scale and passing savings to members.
- It shares its surplus among members as dividends (bonus), raising their real incomes.
- It protects consumers by supplying genuine, good-quality goods and gives members the chance to save.
Pregunta 69 Informe
(a) Explain any four causes of demand-pull inflation.
(b) Outline any four undesirable effects of inflation.
Demand-pull inflation is a persistent rise in the general price level caused by aggregate demand growing faster than the economy's ability to supply goods and services (too much money chasing too few goods).
(a) Four causes of demand-pull inflation:
- Increase in the money supply. When more money is put into circulation (for example by excessive borrowing or printing), spending rises faster than output and prices are pushed up.
- Increase in government spending. Heavy public spending, especially deficit financing, raises total demand in the economy.
- Rise in consumers' incomes and spending. Higher wages or salaries increase purchasing power and demand for goods.
- Increase in export demand / injection of foreign exchange. Strong demand for a country's exports raises incomes and domestic spending, adding to demand pressure.
(Other valid causes: easy availability of bank credit and a fall in the desire to save.)
(b) Four undesirable effects of inflation:
- Fall in the value of money (reduced purchasing power), so incomes buy less.
- It hurts fixed-income earners such as pensioners and salaried workers, whose real income falls.
- It discourages saving because money kept loses value, which reduces funds available for investment.
- It worsens the balance of payments, since exports become expensive and less competitive while imports become more attractive.
(Other valid effects: it redistributes income unfairly from lenders to borrowers, and it creates uncertainty that discourages long-term planning.)
Detalles de la respuesta
Demand-pull inflation is a persistent rise in the general price level caused by aggregate demand growing faster than the economy's ability to supply goods and services (too much money chasing too few goods).
(a) Four causes of demand-pull inflation:
- Increase in the money supply. When more money is put into circulation (for example by excessive borrowing or printing), spending rises faster than output and prices are pushed up.
- Increase in government spending. Heavy public spending, especially deficit financing, raises total demand in the economy.
- Rise in consumers' incomes and spending. Higher wages or salaries increase purchasing power and demand for goods.
- Increase in export demand / injection of foreign exchange. Strong demand for a country's exports raises incomes and domestic spending, adding to demand pressure.
(Other valid causes: easy availability of bank credit and a fall in the desire to save.)
(b) Four undesirable effects of inflation:
- Fall in the value of money (reduced purchasing power), so incomes buy less.
- It hurts fixed-income earners such as pensioners and salaried workers, whose real income falls.
- It discourages saving because money kept loses value, which reduces funds available for investment.
- It worsens the balance of payments, since exports become expensive and less competitive while imports become more attractive.
(Other valid effects: it redistributes income unfairly from lenders to borrowers, and it creates uncertainty that discourages long-term planning.)
Pregunta 70 Informe
(a) What is an industry?
(b) Explain the following:
(i) division of labour;
(ii) economies of scale.
(c) Outline any four internal economies of scale.
(a) Industry. An industry is a group of firms engaged in the production of the same or similar kinds of goods or services (for example, the textile industry or the banking industry).
(b) Concepts:
- (i) Division of labour is the splitting of a production process into separate tasks so that each worker specialises in one particular task rather than doing the whole job. It raises output through greater skill and speed.
- (ii) Economies of scale are the cost advantages (falling average cost per unit) that a firm enjoys as it expands its scale of production and produces on a larger scale.
(c) Four internal economies of scale:
- Technical economies: a large firm can use large, specialised and more efficient machines, lowering unit cost.
- Managerial economies: a big firm can employ specialist managers for each department, improving efficiency.
- Marketing (commercial) economies: it can buy raw materials in bulk at discounts and spread selling and advertising costs over more units.
- Financial economies: a large firm can borrow more easily and at lower interest rates because it is seen as more creditworthy.
(Other valid internal economies: risk-bearing economies through diversification and research economies.)
Detalles de la respuesta
(a) Industry. An industry is a group of firms engaged in the production of the same or similar kinds of goods or services (for example, the textile industry or the banking industry).
(b) Concepts:
- (i) Division of labour is the splitting of a production process into separate tasks so that each worker specialises in one particular task rather than doing the whole job. It raises output through greater skill and speed.
- (ii) Economies of scale are the cost advantages (falling average cost per unit) that a firm enjoys as it expands its scale of production and produces on a larger scale.
(c) Four internal economies of scale:
- Technical economies: a large firm can use large, specialised and more efficient machines, lowering unit cost.
- Managerial economies: a big firm can employ specialist managers for each department, improving efficiency.
- Marketing (commercial) economies: it can buy raw materials in bulk at discounts and spread selling and advertising costs over more units.
- Financial economies: a large firm can borrow more easily and at lower interest rates because it is seen as more creditworthy.
(Other valid internal economies: risk-bearing economies through diversification and research economies.)
Pregunta 71 Informe
(a) What is public debt?
(b) Outline any three reasons why countries borrow.
(c) Highlight any three effects of a huge national debt on the economy of a country.
(a) Public debt is the total amount of money owed by a government to its citizens, institutions and to foreign countries or international organisations. It is made up of internal debt (owed within the country) and external debt (owed abroad).
(b) Three reasons why countries borrow:
- To finance budget deficits when government expenditure exceeds its revenue.
- To finance capital (development) projects such as roads, electricity, schools and hospitals.
- To meet emergencies such as war, natural disasters or economic crises.
(Other valid reasons: to service or repay existing debts, and to correct a balance of payments deficit.)
(c) Three effects of a huge national debt:
- Heavy debt-servicing burden. Large sums are spent yearly on interest and repayment, leaving less money for development.
- Increased taxation. Government may raise taxes to service the debt, reducing citizens' disposable income.
- Reduced investment and slower growth, as scarce funds are diverted to repayment and external debt drains foreign exchange, weakening the currency.
(Other valid effects: loss of economic sovereignty where lenders impose conditions, and inflationary pressure if the debt is financed by printing money.)
Detalles de la respuesta
(a) Public debt is the total amount of money owed by a government to its citizens, institutions and to foreign countries or international organisations. It is made up of internal debt (owed within the country) and external debt (owed abroad).
(b) Three reasons why countries borrow:
- To finance budget deficits when government expenditure exceeds its revenue.
- To finance capital (development) projects such as roads, electricity, schools and hospitals.
- To meet emergencies such as war, natural disasters or economic crises.
(Other valid reasons: to service or repay existing debts, and to correct a balance of payments deficit.)
(c) Three effects of a huge national debt:
- Heavy debt-servicing burden. Large sums are spent yearly on interest and repayment, leaving less money for development.
- Increased taxation. Government may raise taxes to service the debt, reducing citizens' disposable income.
- Reduced investment and slower growth, as scarce funds are diverted to repayment and external debt drains foreign exchange, weakening the currency.
(Other valid effects: loss of economic sovereignty where lenders impose conditions, and inflationary pressure if the debt is financed by printing money.)
Pregunta 72 Informe
a. Distinguish between the following pairs of concepts
i. elastic demand and inelastic demand
ii. Income elasticity of demand and cross elasticity of demand.
b. Using diagrams, explain how an increase in price will affect the total revenue of a producer if demand for his product is:
i. price elastic
ii. price inelastic
(a)(i) Elastic vs inelastic demand.
| Elastic demand | Inelastic demand |
|---|---|
| A small change in price causes a more than proportionate change in quantity demanded. | A change in price causes a less than proportionate change in quantity demanded. |
| Elasticity coefficient is greater than one \( (e_d > 1) \). | Elasticity coefficient is less than one \( (e_d < 1) \). |
| Typical of luxuries and goods with many substitutes. | Typical of necessities and goods with few substitutes. |
(a)(ii) Income elasticity vs cross elasticity of demand.
- Income elasticity of demand measures the responsiveness of quantity demanded of a good to a change in consumers' income: \[ e_y = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in income}} \]
- Cross elasticity of demand measures the responsiveness of quantity demanded of one good (X) to a change in the price of another good (Y): \[ e_{xy} = \frac{\% \text{ change in quantity demanded of X}}{\% \text{ change in price of Y}} \] It is positive for substitutes and negative for complements.
(b) Effect of a price increase on total revenue. Total revenue is \( TR = P \times Q \).
- (i) If demand is price elastic: a rise in price causes a larger proportionate fall in quantity demanded, so total revenue falls. On a diagram, the demand curve is fairly flat (gentle slope); the revenue lost from selling far fewer units outweighs the revenue gained from the higher price.
- (ii) If demand is price inelastic: a rise in price causes only a small proportionate fall in quantity demanded, so total revenue rises. On a diagram, the demand curve is fairly steep; the higher price more than makes up for the small drop in sales.
Examination reminder: the second part of (b) reads "price elastic" twice in the paper, but the intended contrast is elastic versus inelastic, which is answered above.
Detalles de la respuesta
(a)(i) Elastic vs inelastic demand.
| Elastic demand | Inelastic demand |
|---|---|
| A small change in price causes a more than proportionate change in quantity demanded. | A change in price causes a less than proportionate change in quantity demanded. |
| Elasticity coefficient is greater than one \( (e_d > 1) \). | Elasticity coefficient is less than one \( (e_d < 1) \). |
| Typical of luxuries and goods with many substitutes. | Typical of necessities and goods with few substitutes. |
(a)(ii) Income elasticity vs cross elasticity of demand.
- Income elasticity of demand measures the responsiveness of quantity demanded of a good to a change in consumers' income: \[ e_y = \frac{\% \text{ change in quantity demanded}}{\% \text{ change in income}} \]
- Cross elasticity of demand measures the responsiveness of quantity demanded of one good (X) to a change in the price of another good (Y): \[ e_{xy} = \frac{\% \text{ change in quantity demanded of X}}{\% \text{ change in price of Y}} \] It is positive for substitutes and negative for complements.
(b) Effect of a price increase on total revenue. Total revenue is \( TR = P \times Q \).
- (i) If demand is price elastic: a rise in price causes a larger proportionate fall in quantity demanded, so total revenue falls. On a diagram, the demand curve is fairly flat (gentle slope); the revenue lost from selling far fewer units outweighs the revenue gained from the higher price.
- (ii) If demand is price inelastic: a rise in price causes only a small proportionate fall in quantity demanded, so total revenue rises. On a diagram, the demand curve is fairly steep; the higher price more than makes up for the small drop in sales.
Examination reminder: the second part of (b) reads "price elastic" twice in the paper, but the intended contrast is elastic versus inelastic, which is answered above.
Pregunta 73 Informe
a. What is public debt?
b. Outline any three reasons why counties borrow.
c. Highlight any three effects of a huge national debt on the economy of a country.
a. Meaning of public debt. Public debt (national debt) is the total amount of money that a government owes to individuals, business firms, financial institutions, other governments and international organisations as a result of its borrowing, together with the interest payable on it. It is made up of internal debt (owed to lenders within the country) and external debt (owed to lenders outside the country), and the government is legally obliged to repay it.
b. Reasons why countries borrow.
- To finance a budget deficit: when planned government expenditure exceeds expected revenue, borrowing bridges the gap.
- To finance capital/development projects: roads, schools, hospitals, dams and other infrastructure require large sums that current revenue cannot cover.
- To meet emergencies: war, drought, flood or other disasters call for sudden heavy spending.
(Other acceptable reasons: to correct a balance-of-payments deficit, or to repay/service an existing debt.)
c. Effects of a huge national debt.
- Heavy debt-servicing burden: a large share of revenue is used to pay interest and principal instead of financing development.
- Higher taxation: government raises taxes to repay the debt, reducing disposable income and discouraging effort and investment.
- Loss of economic independence: external creditors may impose harsh conditions, weakening the country's control over its own economic policy.
(Other valid effects: inflation, currency depreciation, and reduced future consumption as today's borrowing must be repaid by future generations.)
Detalles de la respuesta
a. Meaning of public debt. Public debt (national debt) is the total amount of money that a government owes to individuals, business firms, financial institutions, other governments and international organisations as a result of its borrowing, together with the interest payable on it. It is made up of internal debt (owed to lenders within the country) and external debt (owed to lenders outside the country), and the government is legally obliged to repay it.
b. Reasons why countries borrow.
- To finance a budget deficit: when planned government expenditure exceeds expected revenue, borrowing bridges the gap.
- To finance capital/development projects: roads, schools, hospitals, dams and other infrastructure require large sums that current revenue cannot cover.
- To meet emergencies: war, drought, flood or other disasters call for sudden heavy spending.
(Other acceptable reasons: to correct a balance-of-payments deficit, or to repay/service an existing debt.)
c. Effects of a huge national debt.
- Heavy debt-servicing burden: a large share of revenue is used to pay interest and principal instead of financing development.
- Higher taxation: government raises taxes to repay the debt, reducing disposable income and discouraging effort and investment.
- Loss of economic independence: external creditors may impose harsh conditions, weakening the country's control over its own economic policy.
(Other valid effects: inflation, currency depreciation, and reduced future consumption as today's borrowing must be repaid by future generations.)
