WAEC SSCE - Economics - 2003 (Essay)

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(a) Importance of the scale of preference. A scale of preference is a list of a person's wants arranged in order of their importance or urgency, from the most pressing to the least. It is important because human wants are unlimited while the means (income and resources) to satisfy them are limited. By ranking wants, the individual can satisfy the most urgent needs first with the scarce resources available, make rational choices, avoid waste, and know clearly what is being given up. It is therefore the basis of choice and of measuring opportunity cost.

(b) Opportunity cost. Opportunity cost (or real cost) is the value of the next best alternative that is forgone when a choice is made. Because resources are scarce, choosing one thing means sacrificing another; the alternative given up is the true cost of the decision. For example, if a farmer uses land to grow yam, the opportunity cost is the cassava he could have grown on that same land instead.

(c) Stating the opportunity cost:

• (i) A shirt bought for N500 instead of a pair of shoes: the opportunity cost is the pair of shoes that had to be given up.
• (ii) Onions grown realising N20,000 instead of maize that could have realised N25,000: the opportunity cost is the maize (worth N25,000) that was forgone.

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(a) Cost-push vs demand-pull inflation.

Cost-push inflation is a persistent rise in the general price level caused by rising costs of production. When wages, raw materials, energy or import prices rise, producers pass on the higher costs by raising prices, so it originates from the supply (cost) side.

Demand-pull inflation is a persistent rise in the general price level caused by total demand growing faster than the supply of goods and services (too much money chasing too few goods). It is pulled up by excess aggregate demand, often from increased money supply, government spending or exports.

In short, cost-push comes from higher production costs (supply side), while demand-pull comes from excess demand (demand side).

(b) Ways of controlling inflation:

• Monetary policy: the Central Bank reduces the money supply by raising the bank rate, selling securities (open market operations) and raising the reserve/liquidity ratios, so that less money chases goods.
• Fiscal policy: the government reduces its spending and/or raises taxes to cut excess purchasing power (aggregate demand).
• Increasing output/supply: encouraging greater production of goods and services (and imports of scarce goods) so that supply matches demand.
• Price and income (wage) control: the government fixes maximum prices and restrains wage increases to keep costs and prices down.

Any four, well explained, are acceptable.

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(a) Unemployment is a situation in which people who are able and willing to work, and are actively seeking work at the prevailing wage rate, are unable to find jobs. It refers to the idleness of labour that is available for and seeking employment; it excludes those unwilling or unable to work.

(b) Effects of unemployment on an economy:

• Fall in national output (GDP): idle labour is wasted, so the economy produces less than it could, and income per head falls.
• Lower standard of living: the unemployed and their dependants have little or no income, increasing poverty.
• Loss of government revenue: fewer people earn taxable incomes, while government spends more on relief, so budgets suffer.
• Increase in crime and social vices: idleness and lack of income encourage armed robbery, fraud and restiveness, threatening security.
• Rural-urban migration and drift: people move about in search of work, straining urban facilities.
• Waste of investment in education and training: skills acquired go unused, and workers' skills deteriorate over time.
• Political and social unrest: widespread unemployment breeds discontent and can cause instability.
• Emigration (brain drain): skilled people leave for jobs abroad, depriving the country of manpower.

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(a) Economic planning is the deliberate and conscious effort by the government to direct and control the economic activities and resources of a country towards achieving stated economic objectives (such as growth, full employment and development) over a specified period of time. It involves setting targets and allocating resources through a coordinated plan.

(b) Problems of economic planning in West Africa:

• Inadequate and unreliable data (statistics): lack of accurate figures on population, resources and income makes it hard to set realistic targets.
• Shortage of capital/finance: insufficient funds to execute planned projects, forcing reliance on foreign loans and aid.
• Shortage of skilled manpower: few trained planners, administrators and technicians to prepare and implement the plans effectively.
• Political instability: frequent changes of government interrupt or abandon plans midway.
• Corruption and mismanagement: diversion of funds and inefficiency reduce the resources actually reaching projects.
• Over-dependence on external factors: reliance on imported inputs, foreign experts and volatile export earnings makes plans vulnerable to outside shocks.
• Natural disasters and unforeseen events: drought, flood and disease can upset planned targets.
• Poor implementation and lack of continuity: weak machinery for execution and monitoring means plans are often not carried out as designed.

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(a) Savings account. This is a deposit account operated mainly by small savers with a commercial bank or savings bank. It earns interest, encourages the saving habit, and usually requires the presentation of a passbook (or card) for withdrawals. Withdrawals may be limited in number or amount, and cheques are not normally issued on it. It is suited to people who wish to keep money safe while earning modest interest.

(b) Current account. This is a demand-deposit account used mainly by businesses and traders for frequent transactions. The customer is issued a cheque book and can withdraw or pay by cheque at any time. It earns little or no interest, and the bank usually charges commission on turnover (bank charges). It also allows overdraft facilities to approved customers, making it convenient for business payments.

(c) Fixed deposit account. This is an account in which a sum of money is deposited with the bank for a fixed period of time (for example three months, six months or a year) and cannot be withdrawn before the agreed date without notice or loss of interest. It earns a higher rate of interest than a savings account because the bank can lend the money over that period. It suits customers who have surplus funds they do not need immediately.

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(a) Nationalisation is the taking over of the ownership and control of privately owned businesses or industries by the government, so that they become public enterprises run in the public interest. Owners are usually paid compensation.

(b) Commercialisation is the reorganisation of a government-owned enterprise so that it is run on business (profit-making) principles like a private firm, becoming financially self-sustaining without government subsidy, while ownership remains partly or wholly with the government.

(c) Privatisation is the transfer of the ownership and control of a public (government-owned) enterprise, wholly or partly, to private individuals or companies, usually through the sale of shares, so as to improve efficiency and reduce the burden on government.

(d) Indigenisation is a policy that transfers the ownership and control of enterprises (especially those formerly owned by foreigners) to the citizens (indigenes) of a country, so that nationals participate more fully in the economy, as under Nigeria's Indigenisation Decrees.

(e) Joint ventures are business arrangements in which two or more parties (for example the government and private investors, or local and foreign firms) jointly own, finance, manage and share the profits and risks of an enterprise.

Any four, clearly explained, earn full marks.

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Percentage tax rate \(=\dfrac{\text{tax}}{\text{income}}\times 100\). Column A = base tax, Column B = payments.

(a) Percentage rates

• (i) Jawara: A \(=\dfrac{1500}{15000}\times 100 = 10\%\); B \(=\dfrac{1200}{15000}\times 100 = 8\%\)
• (ii) Audu: A \(=\dfrac{6000}{60000}\times 100 = 10\%\); B \(=\dfrac{3000}{60000}\times 100 = 5\%\)
• (iii) Ade, column B \(=\dfrac{2000}{25000}\times 100 = 8\%\)
• (iv) Eke, column B \(=\dfrac{2240}{32000}\times 100 = 7\%\)

(b)(i) Systems of taxation

Column A applies the same rate (about 10%) to every earner regardless of income, so it is proportional taxation. In column B the rate falls as income rises (Jawara 8%, Ade 8%, Eke 7%, Audu 5%), so column B is regressive taxation.

(ii) Under column B the earner with the least burden is Audu, paying the lowest rate (5%).

(c)(i) Revenue at a 15% flat rate

Total income \(= 15000 + 25000 + 32000 + 60000 = 132000\).

\[0.15\times 132000 = \text{N}19{,}800\]

(ii) Disposable income = income minus the 15% tax:

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Foreign (international) trade is trade between different countries, while domestic (internal or home) trade is trade within the same country. They differ in the following ways:

• Currency used: domestic trade uses one national currency; foreign trade involves different currencies, so it requires foreign exchange and exchange rates.
• Trade barriers: foreign trade faces tariffs, quotas, customs duties and other restrictions at national borders; domestic trade is generally free of such barriers.
• Distance and transport: foreign trade usually covers longer distances and greater transport and insurance costs (often by sea or air) than domestic trade.
• Documentation: foreign trade needs many documents (bill of lading, invoice, certificate of origin, import/export licences); domestic trade needs far fewer.
• Mobility of factors: labour and capital move fairly freely within a country but face immigration and legal barriers between countries.
• Risks: foreign trade carries extra risks such as exchange-rate fluctuations, political changes and longer delivery times.
• Language, laws and culture: foreign trade deals with different languages, legal systems, weights, measures and business customs; domestic trade shares a common framework.
• Government control and policy: foreign trade is more closely regulated (balance of payments, exchange control) than domestic trade.

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(a) Economic integration is an arrangement whereby two or more countries agree to co-operate and combine parts of their economies by reducing or removing trade and other barriers among themselves, in order to form a larger economic unit and share mutual benefits such as a wider market, freer movement of goods, and faster development. ECOWAS is a West African example.

(b) Problems of economic integration in West Africa:

• Differences in currency: member states use different currencies (naira, cedi, CFA franc, etc.), which complicates trade and payments among them.
• Production of similar goods: most members are primary producers of similar agricultural and mineral products, so they compete rather than complement one another, limiting intra-regional trade.
• Poor transport and communication links: inadequate roads, railways and communication between member countries hinder the movement of goods and people.
• Language and colonial differences: the mix of English, French and Portuguese speaking states with different legal and administrative systems makes cooperation difficult.
• Unequal levels of development / fear of domination: less developed members fear that stronger economies will dominate, so they hesitate to remove barriers.
• Political instability and lack of political will: frequent changes of government, conflicts and reluctance to surrender sovereignty weaken commitment to agreements.
• Loss of revenue from tariffs: removing import duties on intra-community trade reduces government revenue, discouraging full participation.

Any four, well explained, are acceptable.

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(a) Meaning of price elasticity of demand

Price elasticity of demand is the degree of responsiveness of quantity demanded to a change in the price of a commodity, other factors remaining constant. It is measured as:

\[E_d=\frac{\%\text{ change in quantity demanded}}{\%\text{ change in price}}\]

(b) Diagrams of types of price elasticity of demand

(i) Perfectly inelastic demand: Quantity demanded remains unchanged whatever the change in price. Thus, \(E_d=0\), and the demand curve is vertical.

(ii) Unitary elastic demand: The percentage change in quantity demanded is exactly equal to the percentage change in price. Thus, \(E_d=1\). The demand curve is a rectangular hyperbola, so that total expenditure, \(P\times Q\), remains constant at every point on the curve.

(iii) Fairly elastic demand: A small percentage change in price causes a more than proportionate percentage change in quantity demanded. Thus, \(E_d>1\). The demand curve is relatively flat.

(iv) Perfectly elastic demand: At a given price, consumers will buy any quantity, but a slight increase in price reduces quantity demanded to zero. Thus, \(E_d=\infty\), and the demand curve is horizontal.

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A population census is the official counting of all the people living in a country at a particular time, together with information about their characteristics. Governments conduct it for the following reasons:

• To know the total size of the population and its rate of growth, which is basic to all national planning.
• For economic and development planning: to plan the provision of schools, hospitals, roads, housing, water and other social amenities according to numbers.
• To know the distribution of the population: by age, sex, occupation and geographical area, which guides policy on employment, health and education.
• To estimate the size of the labour force: the number of people available for work, needed for manpower planning.
• For revenue and budgeting: to help plan taxation and the sharing of national revenue and resources among regions.
• For political and administrative purposes: to determine the number of electoral constituencies, seats and representation, and to delimit boundaries.
• To determine population density: and detect problems of over-population or under-population in different areas.
• For international relations and aid: reliable data help in dealings with, and assistance from, other countries and international bodies.