WAEC SSCE - Economics - 1999

Akọwa Nkọwa

A scale of preference is a priority rating of aggregate individuals wants. It refers to a list of wants or needs arranged in order of importance or priority. People usually have unlimited wants, but resources to satisfy these wants are limited, so they have to make choices. A scale of preference helps people to make choices by giving them a clear understanding of what is important to them, and what can be sacrificed or postponed. The most important wants are given priority over the less important ones, and this helps to allocate resources efficiently.

Akọwa Nkọwa

In the long run, all factor inputs are variable. This means that a firm can adjust its usage of all inputs including labor, capital, and materials to produce a desired level of output. Unlike in the short run, where at least one input is fixed, in the long run, a firm has the flexibility to choose the optimal combination of inputs to minimize costs and maximize profits. This makes the long run a crucial period for firms to make strategic decisions such as expanding production, entering new markets, or investing in new technology to stay competitive.

Akọwa Nkọwa

The quantity demanded of a commodity is influenced by several factors, including tastes, weather, price of the commodity, and price of other commodities. However, this question suggests that the quantity demanded is only influenced by one factor, and asks to identify that factor. Out of the options provided, the correct answer is "price of the commodity," as it is one of the primary determinants of the quantity demanded. As the price of a commodity decreases, the quantity demanded generally increases, and vice versa. Other factors, such as tastes, weather, and prices of other commodities, can also affect the quantity demanded, but the price of the commodity is the most direct and significant influence.

Akọwa Nkọwa

Price discrimination can only occur when there is imperfect competition. This is because price discrimination involves a seller charging different prices for the same product or service to different customers based on their willingness to pay. In a perfect competition market, there are many buyers and sellers, and each seller sells an identical product, making it impossible to charge different prices to different customers. However, in an imperfect competition market, there are a limited number of sellers and buyers, and the seller has some market power, which allows them to charge different prices to different customers.

Akọwa Nkọwa

Per capita income in any West African country is measured by dividing the Gross National Product (GNP) by the total population. Per capita income is a measure of the average income per person in a particular country. It is calculated by dividing the total Gross National Product (GNP) of a country by its total population. GNP refers to the total value of goods and services produced by a country's residents, including those living abroad. By dividing GNP by the total population, we get an average measure of the income of each person in the country. This allows for a comparison of the standard of living across different countries. The higher the per capita income, the better the standard of living in a country.

Akọwa Nkọwa

The money payment made to owners of land and labour are rent and wages. Rent is the payment made to the owner of land for the use of the land. Wages, on the other hand, is the payment made to labour for the use of their services in the production process. These two factors of production are compensated with these payments as they contribute to the production process of goods and services.

Akọwa Nkọwa

The answer is "payment of salaries and wages". Capital expenditure refers to the spending of funds for acquiring, maintaining or upgrading fixed assets, such as buildings, equipment, or land, that are expected to benefit the company for more than one fiscal year. Salaries and wages are expenses incurred in the normal course of business operations and are classified as operating expenses, not capital expenditures.

Akọwa Nkọwa

The graph of the function X = a + bY is linear. The equation is in the form of a straight line where X is the dependent variable and Y is the independent variable. The slope of the line is equal to the value of b, and the intercept of the line is equal to the value of a. As the value of Y increases or decreases, the value of X also changes proportionally according to the value of b. Therefore, the graph of the function is a straight line with a constant slope. Hence, the correct answer is "linear".

Akọwa Nkọwa

The most common form of business enterprise in West Africa is the sole proprietorship. A sole proprietorship is a type of business in which one person owns and operates the business. This means that the owner has complete control over the business and is responsible for all its operations and finances. In West Africa, sole proprietorships are the most common type of business enterprise because they are easy to start, require less capital and legal formalities, and offer complete autonomy to the owner. Many small-scale businesses, such as retail shops, hair salons, and restaurants, are run as sole proprietorships in West Africa.

Akọwa Nkọwa

The price elasticity of coefficient indicates the consumer responsiveness to price changes. In other words, it measures the percentage change in quantity demanded of a product due to a percentage change in its price. A higher elasticity value means that consumers are more sensitive to price changes and will decrease their quantity demanded more in response to a price increase, while a lower elasticity value means that consumers are less sensitive to price changes and will only slightly decrease their quantity demanded in response to a price increase.

Akọwa Nkọwa

In determining cost, economics considers both implicit and explicit costs. Explicit costs refer to the actual monetary payments made for goods, services or resources purchased in the market. Implicit costs, on the other hand, are the opportunity costs of using resources owned by the firm or individual, such as the foregone earnings from using owner’s capital or the value of owner’s time spent working for the business. Thus, economics takes into account both explicit and implicit costs when determining the true cost of producing a good or service.

Akọwa Nkọwa

The reward for capital is interest. Interest is the compensation that is paid by a borrower to a lender for the use of their money. Capital refers to the funds or assets that are available for investment, and the return on that capital is in the form of interest. Interest rates are determined by a variety of factors, including the supply and demand for credit, inflation, and monetary policy. In other words, when someone invests their capital, they expect to earn interest on that investment as a reward for putting their money at risk. This interest serves as an incentive for people to invest their money, which in turn fuels economic growth and development.

Akọwa Nkọwa

Infant industries are industries that are in their early stage of production and need protection from foreign competition. They are usually new and still developing, with high start-up costs and limited resources. The protection can be in the form of tariffs, subsidies, or other trade barriers, aimed at allowing the infant industries to develop and become competitive before they face full international competition. The idea is that once these industries are established and competitive, they will be able to stand on their own and contribute to the economic growth of the country. The concept of infant industries is often used in developing countries that are trying to promote domestic industries and reduce their reliance on imports.

Akọwa Nkọwa

A proportional tax refers to a tax system where the tax rate remains the same regardless of the income level of the taxpayer. In other words, everyone pays the same percentage of their income as tax. For example, if the tax rate is 10%, then someone who earns $10,000 will pay $1,000 in taxes while someone who earns $100,000 will pay $10,000 in taxes. Therefore, the tax rate is proportional to the income level.

Akọwa Nkọwa

In an ordinary partnership, the risks are shared among the partners. This means that all partners are jointly and severally liable for the debts and obligations of the partnership. Each partner is responsible for contributing their share of the partnership's capital, and also for any losses that may be incurred by the partnership. The risks of the partnership are not borne solely by the workers or the creditors, but rather by all partners, including the active partners who manage the partnership. This joint liability is one of the main characteristics of a partnership and is designed to encourage careful management of the partnership's affairs by all partners.

Akọwa Nkọwa

The production possibility curve (PPC) shows the maximum possible combinations of two goods that an economy can produce with its existing resources and technology. When all factor inputs are doubled, it means that there is an increase in the amount of resources available for production. This will result in an outward shift of the PPC from its original position. Therefore, the possible outcome is that the PPC will shift from left to right, indicating an increase in the production capacity of the economy. The new PPC will show that the economy can produce more of both goods than it could before. It's worth noting that this scenario assumes that there is no change in technology or other factors that could affect production.

Akọwa Nkọwa

The occupational distribution of population refers to the way in which the working population is distributed across different occupations. This distribution is mainly influenced by economic factors. For example, the availability of job opportunities, wages, and benefits offered by various industries play a significant role in determining the occupational distribution of a population. In regions where there is a shortage of job opportunities, people may be forced to take up jobs in industries that are not in line with their interests or abilities. Similarly, areas with higher wages and better working conditions tend to attract workers, leading to an increase in the workforce in those industries. While other factors such as social, religious, and geographical factors may play a role, economic factors are the most significant influence on the occupational distribution of a population.

Akọwa Nkọwa

Akọwa Nkọwa

The population which yields the highest level of income per head is known as the optimum population. This refers to a situation where the population of a country is in balance with its resources and technology, such that each person can attain the highest possible standard of living. An optimum population strikes a balance between the advantages of a large population (such as economies of scale) and the disadvantages (such as resource depletion and environmental degradation).

Akọwa Nkọwa

Mortgage banks give loans to investors on a long term basis to build houses. This is because mortgage loans are specifically designed for financing the purchase or construction of real estate properties, such as houses or commercial buildings. The funds provided by mortgage banks are usually paid back by the borrower over a period of several years, typically through monthly payments that include both the principal and interest on the loan. By providing financing for housing, mortgage banks enable people to own homes without having to pay the full cost upfront, which can be a significant burden for most people.

Akọwa Nkọwa

The situation where a government spends more than its budget for a fiscal year is known as a deficit budget. This means that the government's expenditures exceed its revenue for the year, resulting in a budget deficit. This can occur due to a variety of factors such as increased spending on social programs, unexpected economic downturns, or decreased revenue from taxes. A deficit budget can have negative consequences such as inflation, increased public debt, and a reduced ability to respond to future economic challenges.

Akọwa Nkọwa

The precautionary motive for holding money refers to the reason why individuals or businesses hold money as a reserve for unforeseen contingencies. This means that people hold money as a precautionary measure to have a financial buffer or safety net in case of unexpected expenses, emergencies, or economic uncertainties. It is essentially a way of protecting oneself from financial risk by having access to liquid assets that can be easily converted into cash when needed.

Akọwa Nkọwa

Mechanization is the most important factor that can boost agriculture in West African countries. Mechanization involves using machines and equipment in farming activities, such as planting, harvesting, and processing of crops. By using mechanization, farmers can save time and energy, increase productivity, and reduce labor costs. Mechanization can also help farmers to cultivate larger areas of land, which can lead to increased yields and profits. Therefore, by paying more attention to mechanization, West African countries can significantly improve their agricultural productivity and increase food security.

Akọwa Nkọwa

When price elasticity of supply is equal to 0.4, supply is said to be inelastic. This means that the quantity supplied of a good or service is not very responsive to changes in price. In other words, when there is a change in price, the change in quantity supplied is relatively small. This situation can occur when it is difficult or costly for producers to adjust their production levels in response to price changes, for example, due to limited resources or fixed production capacity. When supply is inelastic, changes in demand can have a significant impact on the market price.

Akọwa Nkọwa

The system whereby goods are exchanged for goods is known as the barter system. In this system, goods and services are exchanged for other goods and services without the use of money. For example, a farmer may exchange his crops with a carpenter for furniture, or a tailor may exchange his services with a baker for bread. This system was used in the past before the introduction of money as a medium of exchange. However, it has some limitations such as difficulty in determining the value of goods and services, lack of divisibility, and the need for a double coincidence of wants.

Akọwa Nkọwa

Akọwa Nkọwa

Every society aims to pursue economic objectives that improve the well-being of its citizens. These objectives include increasing production, achieving price stability, promoting equitable distribution of income, and ensuring sustainable economic growth and income. However, an inequitable distribution of income is not an economic objective that societies strive to pursue, as it would lead to social unrest and economic instability.

Akọwa Nkọwa

Capital as a factor of production refers to the stock of physical assets that are used in the production process. This includes machinery, equipment, buildings, and tools, among other things. These physical assets are used to produce goods and services, and they are typically owned by businesses or individuals. The use of capital in the production process can lead to increased efficiency, higher output, and ultimately, increased profits.

Akọwa Nkọwa

The quality of money which makes it possible to be carried easily is its portability. This means that money can be easily transported from one location to another without much difficulty. It is a desirable quality because it enables people to carry out transactions without the need for physical goods to be exchanged. It also means that money can be used as a means of exchange in various locations, making it a convenient medium of exchange for buyers and sellers.

Akọwa Nkọwa

A commodity market can best be described as a market in which goods are sold. In a commodity market, various raw materials and primary products are traded. These can include agricultural products like wheat and corn, precious metals like gold and silver, and energy products like oil and gas. Commodity markets provide a platform for buyers and sellers to trade in these goods, with prices determined by supply and demand. Commodity markets are important because they enable producers to sell their products at a fair market price, and provide buyers with a reliable source of the goods they need. They also help to ensure that resources are allocated efficiently, as goods are directed towards those who value them the most. Overall, commodity markets play a key role in the global economy, providing a platform for the trade of goods that are essential for daily life and economic growth.

Akọwa Nkọwa

In a perfect market, the price and quantity of a good or service are determined by the forces of demand and supply. This means that the price of the good or service will adjust until the quantity supplied by producers is equal to the quantity demanded by consumers. The higher the price, the less quantity demanded by consumers, and the more quantity supplied by producers. Conversely, the lower the price, the more quantity demanded by consumers, and the less quantity supplied by producers. The equilibrium price and quantity occur where the quantity demanded equals the quantity supplied. This system is often referred to as the "invisible hand" of the market, where prices and quantities are determined by the interactions of buyers and sellers without any external intervention.

Akọwa Nkọwa

The benefits that result from concentrating similar firms in an area is referred to as external economies of scales. These benefits are enjoyed by firms due to their geographical location and not by the individual firms themselves. Such benefits may include the availability of a pool of skilled workers, common suppliers, access to new technologies, and other factors that reduce costs and increase productivity for firms in that area. Therefore, external economies of scale refer to the advantages that firms gain from the clustering of similar businesses in a particular region, which can enhance the overall competitiveness of the industry in that area.

Akọwa Nkọwa

Akọwa Nkọwa

Profits can be calculated by subtracting total cost from total revenue. Total revenue refers to the income generated from the sale of goods or services, while total cost includes all expenses incurred in producing those goods or services, such as materials, labor, and overhead costs. Subtracting total cost from total revenue gives the amount of money left over after all costs have been paid, which is the profit. This is the most common and straightforward method of calculating profits for a business.

Akọwa Nkọwa

The establishment of industries in rural areas will help to reduce rural-urban migration. When industries are established in rural areas, it creates employment opportunities for the people living in rural areas. This will reduce the rate of migration of people from rural areas to urban areas in search of employment opportunities. With more industries in rural areas, the people will have better access to job opportunities, which will reduce their incentive to migrate to urban areas. This will also help to increase the standard of living in rural areas as people will have better access to income and employment opportunities.

Akọwa Nkọwa

Devaluation is the reduction in the value of a country's currency compared to the currencies of other nations. This means that one unit of the devalued currency can now purchase fewer units of foreign currency. Devaluation can occur due to various reasons such as a decrease in foreign demand for the country's goods, a decrease in the country's interest rates relative to other countries, or an increase in the supply of the country's currency. The purpose of devaluation is to make the country's exports more competitive in foreign markets by making them relatively cheaper, and to discourage imports by making them relatively more expensive.

Akọwa Nkọwa

The West African economy can best be described as agricultural. Agriculture is the primary economic activity in West Africa, accounting for a significant portion of the region's GDP and providing employment for a large proportion of the population. The climate and terrain in West Africa are well-suited for the production of crops like cocoa, cotton, peanuts, and palm oil, which are major exports for the region. In addition to agriculture, West Africa is also rich in natural resources such as gold, diamonds, and oil. However, these industries are often dominated by foreign companies and have not led to significant economic development for the region. While some countries in West Africa have experienced significant economic growth in recent years, many still struggle with poverty, high unemployment, and inadequate infrastructure. However, the region has shown potential for growth and development, particularly in areas like renewable energy, which could help to diversify the economy and create new opportunities for employment and investment. Overall, the West African economy is largely agricultural, but has the potential for growth and diversification in other industries as well.

Akọwa Nkọwa

In a socialist economy, the factors of production are owned and controlled by the government. The government plays a central role in planning and regulating the economy, and the goal is to distribute resources and wealth equally among all members of society. This is in contrast to a capitalist economy where the factors of production are owned by private individuals or businesses and are operated for profit. In a socialist economy, the government makes decisions about production and distribution, with the aim of meeting the needs of the entire society rather than just maximizing profits for a select few.

Akọwa Nkọwa

Balance of trade refers to the relationship between visible exports and visible imports of a country over a given period. Visible exports are physical goods that are produced in one country and sold to another country, while visible imports are physical goods that are produced in another country and bought by the domestic country. The balance of trade can be positive, indicating that a country is exporting more than it is importing, or negative, indicating that a country is importing more than it is exporting. It is an important measure of a country's economic health and can impact its currency value and overall economic stability.

Akọwa Nkọwa

The main reason why governments impose taxes is to provide social amenities for their citizens. These amenities include things like roads, schools, hospitals, security, and other public services that are necessary for the welfare of citizens. Taxes are also used to finance government operations, pay salaries of government employees, and support the military. Although taxes can sometimes be seen as a burden, they are essential for the proper functioning of a society, and the benefits they provide usually far outweigh the costs.

Akọwa Nkọwa

A regressive tax is a tax system where the tax rate decreases as the taxable amount increases. In other words, the poorer you are, the higher percentage of your income you pay as tax. This type of tax is considered regressive because it places a heavier burden on low-income earners compared to high-income earners. The term "regressive" refers to the fact that the tax rate decreases or regresses as income increases. Therefore, the correct answer is a regressive tax.

Akọwa Nkọwa

An indirect tax is a tax that is imposed on goods and services rather than on individuals or businesses. Therefore, of the options given, the indirect tax would be sales tax. Sales tax is a tax on the sale of goods and services and is often added to the price of the item. The tax is collected by the seller and then passed on to the government. The buyer indirectly pays the tax when they purchase the item. Unlike direct taxes, such as income tax or company tax, which are paid by individuals or businesses respectively, indirect taxes are paid by consumers through the purchase of goods and services.

Akọwa Nkọwa

Productivity per worker is best measured by dividing the total output of a company or an economy by the number of workers. This gives an average measure of the amount of output produced by each worker. By dividing total output by the number of workers, it provides an indication of how efficient workers are in producing goods or services. Therefore, the correct answer is "total output divided by the number of workers."

Akọwa Nkọwa

Income elasticity of demand is a measurement of the responsiveness of quantity demanded to a change in income. Income elasticity of demand measures the percentage change in the quantity demanded of a product in response to a percentage change in income. It shows how sensitive the demand for a product is to changes in income. If the income elasticity of demand for a product is positive, it means that as income increases, the quantity demanded of the product also increases. If it is negative, it means that as income increases, the quantity demanded of the product decreases. The higher the income elasticity of demand, the more sensitive the demand for the product is to changes in income.

Akọwa Nkọwa

If a tax is imposed on a good whose demand is inelastic, it means that consumers will continue to purchase the good despite the increase in price due to the tax. This is because the good is a necessity or there are no close substitutes available. As a result, the government revenue will increase because the tax is collected on every unit of the good sold. In contrast, if a tax is imposed on a good whose demand is elastic, consumers will reduce their consumption of the good due to the increase in price, resulting in a decrease in government revenue.

Akọwa Nkọwa

The combination of qualities that ensures a good tax system is economy, convenience, certainty, and equity. Economy means that the tax system should not be overly burdensome or expensive to administer, both for the government and for taxpayers. Convenience means that the tax system should be easy for taxpayers to comply with and for the government to administer. Certainty means that taxpayers should be able to know how much tax they owe and when it is due. Finally, equity means that the tax system should be fair and just, with the burden of taxation shared fairly among taxpayers based on their ability to pay. Therefore, a good tax system should balance these four qualities to ensure that it is effective, efficient, and fair.

Akọwa Nkọwa

The correct answer is Net National Income (NNI). It is a measure of a country's income that takes into account the depreciation of capital. GNP is the total value of all goods and services produced by a country's residents, regardless of their location, in a given period of time, usually a year. Depreciation is the decrease in the value of capital goods over time, so NNI is calculated by subtracting depreciation from GNP. NNI represents the actual income earned by a country's residents and is a better indicator of a country's economic well-being than GNP or GDP.

Akọwa Nkọwa

Akọwa Nkọwa

In the money market, money can only be borrowed for short-term purposes. The money market deals with short-term lending and borrowing, typically for periods of less than a year. The loans in the money market are used to finance current operations, such as paying bills and meeting short-term cash flow needs. Therefore, the borrowing and lending in the money market are usually for short-term needs, making it suitable for businesses or individuals who require temporary financial support.

Akọwa Nkọwa

The provision of services is classified under tertiary production. Tertiary production, also known as the service sector, involves the production and delivery of services to individuals and businesses. Services can be intangible products, such as healthcare, education, transportation, and financial services, among others. In contrast to primary and secondary production, which involve the production of tangible goods, tertiary production is all about providing a service. The service sector is a crucial part of most modern economies, and it is often the largest contributor to economic growth and employment.

Akọwa Nkọwa

Total product (TP) and marginal product (MP) are linked by \(MP_n=TP_n-TP_{n-1}\), so \(TP_n=TP_{n-1}+MP_n\). Using this to fill the gaps:

(a) With no fertilizer applied the total output is 1,000 bags.

(b) Total product: (i) at 4 tonnes, \(1{,}500+400=1{,}900\) bags; (ii) at 5 tonnes, \(1{,}900+250=2{,}150\) bags; (iii) at 6 tonnes, \(2{,}150+125=2{,}275\) bags.

(c) Marginal product: (i) at 7 tonnes, \(2{,}350-2{,}275=75\) bags; (ii) at 8 tonnes, \(2{,}380-2{,}350=30\) bags; (iii) at 9 tonnes, \(2{,}330-2{,}380=-50\) bags.

(d)(i) Marginal product rises up to 4 tonnes (MP = 400) and then falls, so diminishing marginal returns set in after the 4th tonne of fertilizer.

(d)(ii) Total output is highest at 8 tonnes (2,380 bags) and then falls, so total output begins to decrease after the 8th tonne of fertilizer.

Akọwa Nkọwa

Natural resources are the free gifts of nature (minerals, land, forests, rivers, wildlife) available for production. In an economy such as Nigeria's they contribute in the following ways:

• Source of government revenue: royalties, rents and taxes from oil, gas and solid minerals form a large part of public income.
• Foreign exchange earnings: exports of crude oil and other resources earn the foreign currency used to pay for imports.
• Employment: mining, oil, agriculture, fishing and forestry provide jobs for many people.
• Raw materials for industry: minerals and agricultural produce feed local manufacturing, for example crude oil for refineries and petrochemicals.
• Provision of energy: oil, gas and hydro resources supply power for homes and industries.
• Basis for industrialisation and infrastructure: resource revenue finances roads, schools, hospitals and industrial projects.
• Food and export crops: fertile land supplies food and cash crops such as cocoa and rubber.
• Attraction of foreign investment into extractive and processing industries.
• Contribution to national output (GDP) and to overall economic growth.

Thus natural resources support the economy through revenue, foreign exchange, employment, raw materials, energy and growth, provided they are efficiently exploited and the earnings well managed.

Akọwa Nkọwa

The small-scale trader (petty trader, market woman, roadside seller) is very important in West African countries for several reasons:

• Distribution to consumers: small traders move goods from wholesalers and producers to the final consumer, reaching rural and remote areas that large firms ignore.
• Sale in small units: they break bulk and sell in tiny quantities (a cup of rice, one cigarette, a sachet of oil) that suit the low incomes of most buyers.
• Employment and self-reliance: trading requires little capital and few skills, so it provides a livelihood for millions and reduces unemployment.
• Convenience and nearness: shops and stalls are located close to homes and open long hours, saving consumers time and transport costs.
• Provision of credit: familiar traders often sell on trust or short-term credit to regular customers.
• Encouraging local production: they create a ready market for the output of local farmers and craftsmen.
• Low capital requirement makes trade an entry point into business and a source of savings for larger ventures.
• Government revenue through market tolls, licences and taxes.

In economies with widespread poverty, poor transport and large informal sectors, small-scale traders are the backbone of everyday distribution and a major source of income and employment.

Akọwa Nkọwa

A balance of payments deficit occurs when a country's total payments to the rest of the world exceed its total receipts, mainly because imports and other outflows exceed exports and other inflows. The main causes in a developing country such as Nigeria include:

• High import bills: heavy importation of manufactured goods, machinery, food and luxuries.
• Narrow, over-dependent export base: reliance on one or few primary products (for example crude oil) whose prices are unstable in the world market.
• Fall in world prices of exports or a decline in demand for them, reducing export earnings.
• Unfavourable terms of trade: export prices falling relative to import prices.
• Inflation at home: high domestic prices make exports uncompetitive and imports more attractive.
• Debt-service payments: large interest and principal repayments on foreign loans.
• Profit and dividend repatriation by foreign firms operating in the country.
• Capital flight and heavy invisible payments such as freight, insurance and foreign travel or medical treatment.
• Over-valued exchange rate that cheapens imports and dearens exports.
• Fall in domestic production forcing greater reliance on imports.

The central reasoning is that the country spends more foreign exchange on imports and other outflows than it earns from exports and inflows, and this gap is widened by over-dependence on unstable primary exports.

Akọwa Nkọwa

(a) Economic resources versus non-economic resources

• Economic resources (free-of-nothing, i.e. scarce goods): resources that are scarce relative to demand, so they command a price and their use involves an opportunity cost, for example land, labour, capital and minerals.
• Non-economic (free) resources: resources so abundant that they satisfy all wants at zero price and carry no opportunity cost, for example air, sunshine and, in some places, sea water.

(b) Want versus demand

• Want: a mere desire or wish to have a good or service; it need not be backed by the ability or willingness to pay.
• Demand: a want backed by both the willingness and the ability to pay a price at a particular time. Demand is therefore effective (backed by money), whereas a want alone is not.

(c) Money cost versus real cost

• Money cost: the amount of money actually spent to produce or acquire a good, that is, the payments made for factors and materials expressed in money terms.
• Real cost: the effort, sacrifice and alternatives forgone in producing a good, that is, the opportunity cost measured in terms of the other goods or satisfactions given up rather than in money.

Akọwa Nkọwa

(a) A customs union is a form of economic integration in which member countries remove tariffs and other trade barriers on trade among themselves and, in addition, adopt a common external tariff against goods coming from non-member countries. It goes further than a free trade area, which only abolishes internal tariffs without a common external tariff.

(b) Three advantages:

• Larger market: free trade among members widens the market, allowing firms to enjoy economies of scale.
• Trade creation: members buy from the most efficient producer within the union, improving specialisation and efficiency.
• Stronger bargaining power against the rest of the world, plus increased investment and closer economic and political cooperation among members.

Two disadvantages:

• Trade diversion: the common external tariff may divert trade away from a cheaper outside producer to a dearer member producer, reducing efficiency.
• Loss of revenue and sovereignty: members lose customs revenue from internal trade and must surrender some control over their own trade policy to the union.

Akọwa Nkọwa

(a) Completion of the demand schedule

Using \(Q_d = 12 - 2P\):

For example, when \(P=4\), \(Q_d=12-2(4)=4\).

(b) Individual demand curve

Plot the points \((Q_d,P)\): \((0,6)\), \((2,5)\), \((4,4)\), \((6,3)\), \((8,2)\), \((10,1)\) and \((12,0)\), and join them with a straight line.

(c) The maximum quantity the individual can buy per unit of time is 12 units. This occurs when \(P=0\).

(d) Quantity demanded and price have an inverse relationship. As price rises, quantity demanded falls; as price falls, quantity demanded rises. In the function, every increase of 1 unit in price reduces quantity demanded by 2 units.

Akọwa Nkọwa

A joint stock company is an incorporated business owned by shareholders who contribute capital by buying shares and enjoy limited liability. It has a separate legal personality from its owners.

Advantages:

• Limited liability: a shareholder can lose only the amount invested; personal assets are protected.
• Large capital: selling shares to many people (and, for public companies, to the general public) raises far more capital than a sole trader or partnership can.
• Continuity (perpetual succession): the company continues to exist despite the death, retirement or withdrawal of any shareholder.
• Transferability of shares: shares, especially in a public company, can be sold easily on the stock exchange.
• Specialised management: the company can employ expert directors and managers, improving efficiency.
• Economies of scale arising from large-scale operation lower average costs.

Disadvantages:

• Difficult and costly formation: legal formalities such as registration, memorandum and articles of association make it expensive to set up.
• Separation of ownership from control: shareholders own the firm but managers run it, which can lead to decisions not in owners' interests.
• Lack of secrecy: published accounts reveal information to competitors.
• Double taxation and heavy regulation: company profits and dividends may both be taxed and the firm faces strict legal controls.
• Slow decision-making because of the large size and bureaucratic structure.
• Possible conflict of interest among directors, managers and shareholders.

Akọwa Nkọwa

West African countries can promote (encourage the growth of) indigenous, locally owned industries through the following measures:

• Provision of finance: establishing development banks and giving loans, grants and credit guarantees to local entrepreneurs.
• Protection from foreign competition: imposing tariffs, quotas or import bans on goods that compete with infant local industries.
• Provision of infrastructure: supplying roads, electricity, water and communications that reduce the cost of production.
• Tax incentives: granting tax holidays, tariff concessions on imported machinery and other reliefs to new industries.
• Manpower training: setting up technical and vocational schools to supply skilled workers and managers.
• Patronage of local products: government and citizens buying home-made goods, and public campaigns to encourage this.
• Provision of raw materials and industrial layouts or estates with ready facilities.
• Enabling policies and stability: maintaining a stable political and economic climate and clear investment laws.
• Research and extension services to improve product quality and technology.
• Indigenisation policies reserving certain enterprises for citizens.

The reasoning is that local industries are usually young and weak, so deliberate government support in finance, protection, infrastructure and skills is needed until they can compete and contribute to output and employment.

Akọwa Nkọwa

Inflation is a persistent rise in the general price level. Its effects on the economy are both positive and negative.

Positive effects (usually of mild, creeping inflation):

• Encourages production and investment: rising prices raise expected profits, so producers expand output and investment.
• Benefits debtors: borrowers repay loans in money of lower real value.
• Reduces unemployment in the short run: increased spending and production can raise employment.
• Higher government revenue: rising money incomes and prices increase tax yields.
• Benefits holders of real assets such as land and property, whose values rise.

Negative effects (especially of high or galloping inflation):

• Falling real income and purchasing power: money buys less, and fixed-income earners such as pensioners suffer most.
• Discourages saving because the real value of savings falls.
• Harms creditors: lenders are repaid in money worth less than they lent.
• Worsens the balance of payments: exports become dearer and less competitive while imports look cheaper.
• Redistributes income unfairly from the poor and fixed-income groups to traders and property owners.
• Creates uncertainty and speculation, discouraging long-term planning and productive investment.
• Can lead to social and political unrest as living costs rise.

The overall verdict is that mild inflation may stimulate output, but severe or unpredictable inflation is damaging to saving, income distribution and external competitiveness.

Akọwa Nkọwa

A monopoly is a market in which a single firm is the sole seller of a product that has no close substitutes, protected by barriers to entry.

Advantages of monopoly:

• Economies of scale: being large, the firm can produce at lower average cost and may pass part of the saving to consumers.
• Funds for research and development: supernormal profits can finance innovation and improved products.
• Avoids wasteful duplication: in the case of natural monopolies such as water or electricity supply, a single network is more efficient than several.
• Stability and continuity: the firm can plan long-term investment without the uncertainty of intense competition.
• Can practise price discrimination that may allow some low-income consumers to be served.

Disadvantages of monopoly:

• Higher prices and lower output: the monopolist restricts output to raise price above the competitive level, reducing consumer welfare.
• Exploitation of consumers through high prices and, sometimes, poor quality.
• Inefficiency (X-inefficiency): lack of competition removes the pressure to keep costs low.
• Loss of consumer choice since there is only one supplier.
• Price discrimination can charge some buyers more for the same good.
• Possible poor service and slower innovation where the firm feels no competitive threat.

Akọwa Nkọwa

When the government fixes prices away from the free-market equilibrium, the economic consequences depend on whether the fixed price is below or above equilibrium.

Price fixed below equilibrium (a maximum or ceiling price), often to protect consumers of essential goods:

• Excess demand (shortage): quantity demanded exceeds quantity supplied, so goods run out.
• Emergence of a black market: scarce goods are resold illegally at prices above the controlled price.
• Hoarding and rationing: sellers hold back goods and formal rationing or queuing may be introduced to share the limited supply.
• Fall in quality as sellers cut standards, and a fall in supply as production becomes less profitable.

Price fixed above equilibrium (a minimum or floor price), often to protect producers, for example a guaranteed price for farmers or a minimum wage:

• Excess supply (surplus): quantity supplied exceeds quantity demanded.
• Government or agencies may have to buy and store the surplus, raising costs.
• Resources are misallocated into over-production, and a minimum wage above equilibrium can create unemployment.

The key point is that a controlled price prevents the market from clearing, so either a persistent shortage or a persistent surplus results, together with side-effects such as black markets, rationing and misallocation of resources.