WAEC SSCE - Economics - 2001
Vraag 1 Verslag
A greater burden of tax on a product with high price elasticity of demand rests mainly on the
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A greater burden of tax on a product with high price elasticity of demand rests mainly on the producer. This is because when the price of a product with high price elasticity of demand increases due to tax, consumers will be less willing to buy it, leading to a decrease in quantity demanded. As a result, the producer will have to bear a greater portion of the tax burden in order to maintain sales. On the other hand, if the product has low price elasticity of demand, consumers will continue to buy it even if the price increases due to tax, allowing the producer to pass on the tax burden to consumers in the form of higher prices.
Vraag 2 Verslag
Performance of one task in a production process is known as
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The performance of one task in a production process is known as specialization. This means that a worker or a group of workers are assigned a specific task in the production process which they are trained to do well. This specialization leads to an increase in efficiency, as the worker becomes more skilled at the task over time, and can complete it faster and with greater accuracy. Specialization also enables the division of labor, where different workers perform different tasks, leading to higher productivity and lower costs.
Vraag 3 Verslag
In which of the following economic system is the consumer referred to as the king?
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In a capitalist economy, the consumer is often referred to as the king. This is because in a capitalist system, businesses operate in a competitive environment where they must cater to the needs and wants of consumers in order to succeed. Consumers have the power to make choices about what goods and services they purchase, and businesses must respond to those choices by producing products that meet their demands. The satisfaction of consumers is therefore essential to the success of businesses in a capitalist economy.
Vraag 5 Verslag
The responsiveness of demand to a change in income is the measurement of
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Income elasticity of demand is the measurement of the responsiveness of demand to a change in income. In other words, it measures how sensitive the quantity demanded of a good is to changes in income. When income increases, some goods may become more affordable and their demand may increase, while for other goods, demand may remain constant or even decrease. The income elasticity of demand helps to understand these changes and is calculated as the percentage change in the quantity demanded of a good divided by the percentage change in income.
Vraag 6 Verslag
Industries are not sited in most rural areas of Nigeria because ?
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Industries are not sited in most rural areas of Nigeria because of inadequate basic infrastructure. Basic infrastructure such as good roads, electricity, water supply, and communication networks are necessary for industries to function effectively. These infrastructure are often lacking or poorly developed in rural areas, which makes it difficult for industries to operate. As a result, industries are usually located in urban or peri-urban areas where infrastructure is more developed.
Vraag 7 Verslag
public expenditure can be financed from all the following sources except the
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Public expenditure can be financed through various sources such as borrowing, grant-in-aid, royalties and rent, and taxation. However, "mobilization fees" are not typically considered as a source of financing public expenditure. Mobilization fees refer to charges or fees paid to investment banks or underwriters for selling securities to the public. While it is possible that some governments may receive such fees in certain circumstances, they are not a common or recognized source of financing for public expenditures.
Vraag 8 Verslag
Consumer buy more of a commodity at a lower price than at a higher price because
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Consumers buy more of a commodity at a lower price than at a higher price because with the same amount of money they will be able to buy more. When the price of a commodity decreases, the quantity demanded by consumers increases because they are able to get more of the commodity for the same amount of money. This is known as the law of demand in economics. It assumes that consumers are rational and always seek to maximize their satisfaction or utility, and that price is one of the factors that influence their buying decisions. When prices are higher, consumers are likely to buy less of a commodity because it is more expensive and they are unable to purchase as much with their limited budget.
Vraag 9 Verslag
Which of the following is the function of an entrepreneur?
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The function of an entrepreneur is to make decisions. An entrepreneur is an individual who takes risks to create a business, and decision-making is an essential aspect of the job. They make choices regarding the type of business to create, the products or services to offer, the price to charge, the location of the business, and the employees to hire, among others. Entrepreneurs also manage and control employment, but their main function is to make decisions that will make their business successful. Organizing unions is not a typical function of an entrepreneur.
Vraag 10 Verslag
The exchange of goods and services across countries can be described as
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Vraag 11 Verslag
The monopolist power can be controlled by the government through
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The government can control the monopolist power through price legislation. Price legislation refers to government regulations that set limits on the prices that monopolies can charge for their products or services. This is done to protect consumers from being charged unfair or excessively high prices by companies that hold a monopoly in the market. By imposing price controls, the government can ensure that consumers have access to affordable products and services, while also preventing monopolies from exploiting their market power to maximize their profits at the expense of consumers.
Vraag 13 Verslag
In a public corporation , the risks of business are borne by the
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In a public corporation, the risks of business are borne by the **taxpayers**. This is because public corporations are owned and funded by the government using taxpayers' money. Any losses incurred by the corporation are ultimately the responsibility of the government and by extension, the taxpayers.
Vraag 14 Verslag
The economic system in which resource are privately owned dis known as
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The economic system in which resources are privately owned is known as capitalism. In this economic system, the means of production such as factories, machines, and land are owned by private individuals or businesses. The primary motive for economic activity is profit, and the market determines the price and quantity of goods and services produced. The government's role in this system is usually limited to regulating business activities and enforcing contracts. Capitalism has been widely adopted by many countries, particularly in the Western world, and is considered the most efficient economic system for generating wealth and promoting innovation.
Vraag 15 Verslag
Balance of payment deficit can be corrected by
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Balance of payment deficit occurs when the total imports of a country exceeds the total exports, leading to a negative balance. This means that the country is spending more foreign exchange than it is earning. One way to correct this deficit is by export promotion measures, which include increasing exports, improving export quality, and finding new export markets. This would increase the foreign exchange earnings of the country and reduce the deficit. Another way is to decrease imports, by implementing import promotion measures, such as increasing import tariffs or imposing quotas. However, purchasing foreign assets or accumulating foreign reserves would only provide a temporary solution to the deficit, as these measures do not address the underlying issue of trade imbalance.
Vraag 16 Verslag
Short-term loans can be sourced from
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Short-term loans can be sourced from commercial banks. Commercial banks offer various types of loans, including short-term loans, which are typically repaid within a year or less. These loans are usually used to finance a company's working capital needs, such as inventory purchase, payroll, and other operating expenses. Unlike long-term loans, short-term loans usually have higher interest rates because of their short repayment periods and the higher risk involved for the lender. Companies can obtain short-term loans from commercial banks by meeting certain creditworthiness criteria and providing collateral or other forms of security to the bank.
Vraag 17 Verslag
In a country with ageing population , the total population
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In a country with an ageing population, the total population is increasing at a low rate. This is because there are fewer births and a higher number of deaths, leading to a slower population growth. The elderly population also makes up a larger proportion of the population, which can have implications for issues such as healthcare and social security. It does not necessarily mean that the population only comprises young school leavers, mainly women, or has reached the optimum level.
Vraag 18 Verslag
The main role of the Organization of Petroleum Exporting Countries (OPEC) is
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The main role of the Organization of Petroleum Exporting Countries (OPEC) is to fix oil production levels. OPEC is a cartel of oil-producing countries whose main goal is to control the supply and price of oil on the world market. To achieve this goal, OPEC sets production quotas for its member countries and coordinates their oil policies. By limiting oil production, OPEC aims to maintain stable prices and prevent price wars among its members.
Vraag 19 Verslag
which of the following is the most liquid asset?
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The most liquid asset among the options listed is bank deposit. Liquidity refers to the ease with which an asset can be converted into cash without affecting its market value. Bank deposits are highly liquid assets because they can be easily converted into cash by simply making a withdrawal from a bank account. On the other hand, bank notes, silver, and cheques may not be as readily accepted as a means of payment and may take longer to convert into cash. Therefore, bank deposits are considered the most liquid asset.
Vraag 20 Verslag
If the quantity demanded of a particular commodity is represented by the function Qd = 30 - 2p, what is the quantity demanded at a price of twelve Naira?
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The given demand function is Qd = 30 - 2p, where Qd represents the quantity demanded and p represents the price of the commodity. We are asked to find the quantity demanded at a price of twelve Naira. Substituting p = 12 in the demand function, we get: Qd = 30 - 2(12) Qd = 30 - 24 Qd = 6 Therefore, at a price of twelve Naira, the quantity demanded of the commodity is 6 units. Hence, the answer is: 6 units.
Vraag 21 Verslag
The difference between the highest and lowest in a set of data is
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The difference between the highest and lowest values in a set of data is called the range. In other words, it is the distance between the largest and smallest values in the data set. It is a measure of dispersion or spread of the data. For example, if a data set contains the numbers 2, 4, 6, 8, and 10, the range would be 10 minus 2, which equals 8. Therefore, the range of this data set is 8.
Vraag 23 Verslag
Which of the following business units can issue shares?
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Sole traders and supermarkets are not legally allowed to issue shares, whereas private limited companies can issue shares to their shareholders. Central banks are not business units, but rather government institutions responsible for managing the country's monetary policy.
Vraag 24 Verslag
commercial banks settle their daily interbank indebtedness through the
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Commercial banks settle their daily interbank indebtedness through the Clearing House. A Clearing House is a financial institution that facilitates the exchange of payments, securities, and other financial transactions between banks. It acts as an intermediary between banks that need to transfer funds or securities to each other. At the end of each business day, each bank sends its transactions to the clearinghouse, which then matches and nets the payments to be made between the banks. This results in a reduction in the number of transactions that need to be settled in cash, which reduces the risk and cost of settlement for banks. The Clearing House helps to ensure the smooth functioning of the payment system and promotes efficiency in the banking sector.
Vraag 25 Verslag
An ad volarem tax refers to a tax
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An ad valorem tax refers to a tax that is based on the value of the commodity or product being taxed. This means that the tax amount increases or decreases in proportion to the value of the product. For example, if a country imposes a 5% ad valorem tax on imported cars, the amount of tax levied would be 5% of the value of the car. This is in contrast to a fixed tax where the tax amount is a fixed amount regardless of the value of the product being taxed.
Vraag 26 Verslag
The quantity theory of money states that a reduction in the quantity of money in circulation would bring about
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The quantity theory of money is an economic theory that states that the level of prices in an economy is directly proportional to the amount of money in circulation. Therefore, a reduction in the quantity of money in circulation would result in a fall in the level of prices in the economy. This means that the answer is "a fall in prices" or "a proportionate fall in prices" as the theory suggests that the fall in prices would be directly proportional to the reduction in the quantity of money.
Vraag 27 Verslag
monocultural agriculture means
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Monocultural agriculture refers to the cultivation of only one type of crop or plant species on a piece of land, usually on a large scale. It is the opposite of polyculture, where multiple crops or plant species are cultivated on the same land. Monoculture is often used in large-scale commercial agriculture and can lead to issues such as soil depletion, pests, and diseases.
Vraag 28 Verslag
When the government initiates measures to make an organization in which it has substantial interest more profit oriented, such a business is described as being
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When the government initiates measures to make an organization in which it has substantial interest more profit oriented, such a business is described as being commercialized. Commercialization of a business involves introducing market principles into the operation of the business in order to increase its profitability. This can include cost-cutting measures, introducing new revenue streams, and restructuring the organization to be more efficient. The goal is to make the business more competitive and profitable, while still retaining some degree of government control or ownership.
Vraag 29 Verslag
The situation in which there is persistent fall in the general price level is referred to as
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Deflation refers to a persistent decrease in the general price level of goods and services in an economy over a period of time. This can happen due to a variety of reasons, such as a decrease in demand, an increase in productivity, or a decrease in the money supply. Deflation can have negative impacts on the economy, such as discouraging spending, reducing investment, and increasing the real value of debt.
Vraag 30 Verslag
The cost incurred by using both fixed and variable factors in production is called
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The cost incurred by using both fixed and variable factors in production is called "total cost." Total cost is the sum of all costs of production, including fixed costs (costs that do not vary with changes in the level of production) and variable costs (costs that do vary with changes in the level of production). It represents the full cost of producing a certain quantity of output, and is an important concept in economics and business management.
Vraag 31 Verslag
The dispersal of people in a country is called
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The dispersal of people in a country is called geographical distribution. Geographical distribution refers to how people are spread out or located across a particular geographic area, such as a country or region. It includes the study of population density, patterns of settlement, and how demographic factors such as age, gender, ethnicity, and socioeconomic status are distributed across different areas. Understanding geographical distribution is important for policymakers, planners, and researchers to make informed decisions about resource allocation, service provision, and other matters related to population distribution.
Vraag 32 Verslag
Which of the following is a luxury item?
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Gold is considered a luxury item because it is a precious metal that is valued for its rarity, beauty, and economic significance. It is often used for jewelry and decorative objects, and its high price makes it a symbol of wealth and status. In contrast, petrol, textbook, and pencil are not usually considered luxury items, as they are common, everyday items that are widely used and easily accessible.
Vraag 33 Verslag
The demand for a commodity not directly for immediate consumption but for the production of another commodity is
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The demand for a commodity not directly for immediate consumption but for the production of another commodity is called "derived demand". In other words, it refers to the demand for a product that is derived from the demand for another product. For example, the demand for steel is a derived demand because it is not consumed directly but is used in the production of other products such as cars, buildings, and machinery. Therefore, the demand for steel is derived from the demand for these other products.
Vraag 34 Verslag
One of the function of money is
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One of the functions of money is to serve as a unit of account. This means that money is used as a standard measurement of value in an economy, allowing for the comparison of the worth of goods and services. Money serves as a common denominator for all goods and services, and prices can be expressed in terms of a particular currency. This function of money helps facilitate economic transactions by providing a standard means of measuring value and prices, making it easier for buyers and sellers to engage in trade.
Vraag 35 Verslag
Which of the following is not a condition for a perfect market?
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The condition that is not a requirement for a perfect market is "ignorance of consumers". In a perfect market, consumers have perfect information about the goods and services they are buying and the prices at which they are being sold. This allows them to make informed decisions and ensures that market forces operate efficiently. Ignorance of consumers, on the other hand, would lead to inefficiencies and distortions in the market. Therefore, it is not a condition for a perfect market.
Vraag 36 Verslag
if there is an increase in wages and salaries without corresponding increase in the supply of goods and services, the situation will lead to
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If there is an increase in wages and salaries without a corresponding increase in the supply of goods and services, the situation will lead to inflation. This is because workers will have more money to spend but the supply of goods and services available for purchase remains the same, leading to an increase in demand without a corresponding increase in supply. As a result, the prices of goods and services will increase, leading to inflation.
Vraag 37 Verslag
A country is economically rich if
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A country is economically rich if it has a large volume of goods and services relative to its population. This means that the country has a high level of production and output, which translates to more goods and services being available for consumption by its citizens. This also implies that the country is able to generate high levels of income and wealth, and is likely to have a high standard of living. The other options listed may contribute to a country's economic well-being, but they are not sufficient on their own to determine if a country is economically rich.
Vraag 38 Verslag
which of the following is a direct tax
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A direct tax is a type of tax that is paid directly to the government by the person or entity on whom it is imposed. Capital gain tax is an example of a direct tax because it is a tax on the profit made from selling an asset such as property, stocks, or other investments. Import duty and export duty are types of indirect taxes because they are levied on goods and services and paid by the consumers indirectly. Sales tax is also an indirect tax because it is collected by the seller from the buyer and paid to the government.
Vraag 39 Verslag
Population growth can be controlled by all the following except
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Population growth can be controlled by various measures, including legalizing abortion, family planning, and limiting the number of children per family. Incentives on immigration, however, are unlikely to have any effect on population growth, as they do not affect the number of births in a given population. Therefore, the correct answer to the question is "incentives on immigration."
Vraag 40 Verslag
Which of the following is associated with the development of petroleum industry in Nigeria?
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Vraag 41 Verslag
Reward for entrepreneurship is
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The reward for entrepreneurship is profit. Profit is the excess of revenue or income earned by a business over the expenses and costs incurred in producing the goods or services. It is the return that an entrepreneur receives for taking the risk of starting and managing a business. The profit earned by entrepreneurs is a reward for their innovation, effort, and risk-taking ability. Profit serves as an incentive for entrepreneurs to continue investing in their businesses and to create new ventures. It is an important measure of the success and viability of a business.
Vraag 42 Verslag
Quasi-rent refers to
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Quasi-rent refers to payments made on any factors of production that are temporarily fixed in supply. It is a concept used in economics to describe a situation where a factor of production (such as land, machinery, or even labor) becomes scarce and commands a higher price than would be the case if it were in abundant supply. In other words, quasi-rent represents the extra income earned by a factor of production that is not permanent, but is nevertheless being used to produce goods or services. This is because the supply of the factor is fixed in the short run, but can be adjusted in the long run.
Vraag 44 Verslag
The upward slope of the supply curve indicates that
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The upward slope of the supply curve indicates that more will be supplied as price rises. This means that suppliers are willing to offer a higher quantity of a product or service as the price goes up. As the price of a good or service increases, suppliers are incentivized to produce more of it because they can earn higher profits. In other words, the quantity supplied of a good or service increases as its price rises.
Vraag 45 Verslag
One disadvantage of inflation is that?
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Inflation can be defined as the persistent increase in the general price level of goods and services over time. One major disadvantage of inflation is that it leads to a decrease in the purchasing power of money, which in turn affects fixed income earners negatively. When there is inflation, the cost of goods and services goes up, but the income of fixed income earners remains constant. This means that the amount of goods and services they can purchase with their income decreases. As a result, their real income reduces, and they are worse off. Therefore, the correct answer is fixed income earners lose.
Vraag 46 Verslag
Economic problems arises because
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Economic problems arise because resources are scarce relative to wants. This means that people have unlimited wants or needs, but the resources to satisfy those wants are limited or scarce. Therefore, choices have to be made on how to allocate these limited resources among different needs and wants. This leads to the problem of scarcity, which is at the heart of all economic problems. The other options mentioned, such as man being insatiable, money being scarce, or engaging in too many economic activities, may contribute to specific economic issues but are not the underlying cause of economic problems.
Vraag 47 Verslag
The reward for a shareholdership of a company is
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The reward for a shareholdership of a company is dividends. Dividends are a portion of a company's profits that are distributed to its shareholders. Shareholders receive dividends as a return on their investment in the company, and the amount of dividends paid is typically determined by the company's board of directors.
Vraag 48 Verslag
(a) What is economic integration?
(b) Outline the characteristics of a customs union.
(a) Economic integration is an arrangement in which two or more countries agree to co-operate and merge parts of their economies by reducing or removing trade barriers among themselves, so as to form a larger economic unit and enjoy mutual benefits such as a wider market and freer movement of goods and factors. Examples include ECOWAS and the European Union.
(b) Characteristics of a customs union:
- Member countries abolish tariffs and trade barriers on goods traded among themselves, allowing free internal trade.
- Members adopt a common external tariff against non-member (outside) countries.
- It creates a larger single market among members, encouraging trade and specialisation.
- There is usually a common commercial and trade policy towards the rest of the world.
- It is a deeper stage of integration than a free trade area (which lacks a common external tariff) but shallower than a common market (which also allows free movement of labour and capital).
- It often involves sharing of customs revenue and joint administration of external trade.
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(a) Economic integration is an arrangement in which two or more countries agree to co-operate and merge parts of their economies by reducing or removing trade barriers among themselves, so as to form a larger economic unit and enjoy mutual benefits such as a wider market and freer movement of goods and factors. Examples include ECOWAS and the European Union.
(b) Characteristics of a customs union:
- Member countries abolish tariffs and trade barriers on goods traded among themselves, allowing free internal trade.
- Members adopt a common external tariff against non-member (outside) countries.
- It creates a larger single market among members, encouraging trade and specialisation.
- There is usually a common commercial and trade policy towards the rest of the world.
- It is a deeper stage of integration than a free trade area (which lacks a common external tariff) but shallower than a common market (which also allows free movement of labour and capital).
- It often involves sharing of customs revenue and joint administration of external trade.
Vraag 49 Verslag
(a) Define labour as a factor of production.
(b) Explain five characteristics of labour.
(a) Definition. Labour is the human effort, both physical and mental, applied to the production of goods and services in return for a reward (wages or salary). It is one of the four factors of production, and its reward is wages.
(b) Characteristics of labour:
- Labour is human: it is inseparable from the worker, who has feelings, rights and personal preferences, so it cannot be bought and owned outright like land or capital.
- Labour is perishable: a day's labour not used today cannot be stored and sold tomorrow; unemployed labour time is lost permanently.
- Labour is mobile but imperfectly so: workers can move between occupations and places, but movement is limited by cost, family ties, skills and other barriers.
- Labour has weak bargaining power individually: a single worker is at a disadvantage against an employer, which is why workers form trade unions to bargain collectively.
- Labour is variable in efficiency: its productivity differs from person to person and depends on education, training, health, motivation and working conditions.
- Labour is an active factor: it sets the other factors of production to work, since land and capital are unproductive without human effort.
Any five well-explained characteristics are acceptable.
Antwoorddetails
(a) Definition. Labour is the human effort, both physical and mental, applied to the production of goods and services in return for a reward (wages or salary). It is one of the four factors of production, and its reward is wages.
(b) Characteristics of labour:
- Labour is human: it is inseparable from the worker, who has feelings, rights and personal preferences, so it cannot be bought and owned outright like land or capital.
- Labour is perishable: a day's labour not used today cannot be stored and sold tomorrow; unemployed labour time is lost permanently.
- Labour is mobile but imperfectly so: workers can move between occupations and places, but movement is limited by cost, family ties, skills and other barriers.
- Labour has weak bargaining power individually: a single worker is at a disadvantage against an employer, which is why workers form trade unions to bargain collectively.
- Labour is variable in efficiency: its productivity differs from person to person and depends on education, training, health, motivation and working conditions.
- Labour is an active factor: it sets the other factors of production to work, since land and capital are unproductive without human effort.
Any five well-explained characteristics are acceptable.
Vraag 50 Verslag
The table below shows the various possible combinations of military and civilian goods produced by a country, using the available resources and technology. Use the table to answer the questions that follow.
| Military goods (in toons) | Civilian goods (in toons) |
| 0 | 200 |
| 20 | 160 |
| 40 | 120 |
| 60 | 80 |
| 80 | 40 |
| 100 | 0 |
(a) Draw the production possibility curve (PPC).
(b) Indicate points S and K at which production is not feasible.
(c) Indicate points M and N at which resources are not efficiently utilized.
(d) What does the downward slope of the PPC indicate?
(e) Why is production not feasible at points S and K?
(a) Production Possibility Curve (PPC)
Plot the given combinations of military and civilian goods and join them to form the PPC.
| Military goods (tonnes) | Civilian goods (tonnes) |
|---|---|
| 0 | 200 |
| 20 | 160 |
| 40 | 120 |
| 60 | 80 |
| 80 | 40 |
| 100 | 0 |
(b) Points S and K lie outside the PPC. They are therefore unattainable or not feasible with the available resources and technology.
(c) Points M and N lie inside the PPC. At these points, resources are underutilised and production is inefficient.
(d) The downward slope of the PPC shows that producing more of one type of good requires producing less of the other type. This is the opportunity cost arising from limited resources and technology.
(e) Production at points S and K is not feasible because the country does not have sufficient resources and technological capacity to produce those combinations of military and civilian goods.
Antwoorddetails
(a) Production Possibility Curve (PPC)
Plot the given combinations of military and civilian goods and join them to form the PPC.
| Military goods (tonnes) | Civilian goods (tonnes) |
|---|---|
| 0 | 200 |
| 20 | 160 |
| 40 | 120 |
| 60 | 80 |
| 80 | 40 |
| 100 | 0 |
(b) Points S and K lie outside the PPC. They are therefore unattainable or not feasible with the available resources and technology.
(c) Points M and N lie inside the PPC. At these points, resources are underutilised and production is inefficient.
(d) The downward slope of the PPC shows that producing more of one type of good requires producing less of the other type. This is the opportunity cost arising from limited resources and technology.
(e) Production at points S and K is not feasible because the country does not have sufficient resources and technological capacity to produce those combinations of military and civilian goods.
Vraag 51 Verslag
Distinguish between:
(a) Fixed Cost and Variable Cost;
(b) Marginal Cost and Marginal Revenue;
(c) Total Cost and Total Revenue;
(d) Average Cost and Average Revenue
(a) Fixed Cost vs Variable Cost. Fixed cost is a cost that does not change with the level of output in the short run; it must be paid even when output is zero (for example rent, insurance, salaries of permanent staff). Variable cost changes directly with output; it rises as more is produced and is zero when output is zero (for example raw materials, wages of casual labour, fuel).
(b) Marginal Cost vs Marginal Revenue. Marginal cost is the addition to total cost from producing one more unit of output, \( MC = \dfrac{\Delta TC}{\Delta Q} \). Marginal revenue is the addition to total revenue from selling one more unit, \( MR = \dfrac{\Delta TR}{\Delta Q} \). A profit-maximising firm produces where \( MC = MR \).
(c) Total Cost vs Total Revenue. Total cost is the entire cost of producing a given output, the sum of total fixed cost and total variable cost \( (TC = TFC + TVC) \). Total revenue is the total receipts from selling that output, price multiplied by quantity \( (TR = P \times Q) \). Profit is the excess of total revenue over total cost.
(d) Average Cost vs Average Revenue. Average cost is cost per unit of output, \( AC = \dfrac{TC}{Q} \). Average revenue is revenue per unit sold, \( AR = \dfrac{TR}{Q} \), which equals the price of the good. The gap between AR and AC per unit measures profit or loss per unit.
Antwoorddetails
(a) Fixed Cost vs Variable Cost. Fixed cost is a cost that does not change with the level of output in the short run; it must be paid even when output is zero (for example rent, insurance, salaries of permanent staff). Variable cost changes directly with output; it rises as more is produced and is zero when output is zero (for example raw materials, wages of casual labour, fuel).
(b) Marginal Cost vs Marginal Revenue. Marginal cost is the addition to total cost from producing one more unit of output, \( MC = \dfrac{\Delta TC}{\Delta Q} \). Marginal revenue is the addition to total revenue from selling one more unit, \( MR = \dfrac{\Delta TR}{\Delta Q} \). A profit-maximising firm produces where \( MC = MR \).
(c) Total Cost vs Total Revenue. Total cost is the entire cost of producing a given output, the sum of total fixed cost and total variable cost \( (TC = TFC + TVC) \). Total revenue is the total receipts from selling that output, price multiplied by quantity \( (TR = P \times Q) \). Profit is the excess of total revenue over total cost.
(d) Average Cost vs Average Revenue. Average cost is cost per unit of output, \( AC = \dfrac{TC}{Q} \). Average revenue is revenue per unit sold, \( AR = \dfrac{TR}{Q} \), which equals the price of the good. The gap between AR and AC per unit measures profit or loss per unit.
Vraag 52 Verslag
Why are many West African countries trying to adopt a free market system?
A free market (or free enterprise) system is one in which the forces of demand and supply, working through the price mechanism, decide what is produced, how it is produced and for whom, with minimal government interference. Many West African countries have moved towards it for the following reasons.
- Greater efficiency: competition forces firms to cut costs and use resources productively, unlike the wasteful, loss-making public enterprises common under state control.
- Failure of central planning: heavy state control produced shortages, inefficiency, corruption and unsustainable budget deficits, so governments sought a market alternative.
- Encouragement of private investment and enterprise: secure property rights and the profit motive attract both domestic and foreign investors, creating jobs and output.
- Conditions of the IMF and World Bank: Structural Adjustment Programmes attached to loans required deregulation, privatisation and reduced subsidies.
- Wider consumer choice and better quality: competition among producers gives consumers more and better goods at competitive prices.
- Reduced burden on government: transferring production to the private sector frees scarce public funds for infrastructure, health and education.
- Faster economic growth: the incentive of profit and rewards for risk-taking stimulate innovation and higher national output.
In short, the free market is adopted mainly to raise efficiency, attract investment and correct the failures experienced under state-dominated economies.
Antwoorddetails
A free market (or free enterprise) system is one in which the forces of demand and supply, working through the price mechanism, decide what is produced, how it is produced and for whom, with minimal government interference. Many West African countries have moved towards it for the following reasons.
- Greater efficiency: competition forces firms to cut costs and use resources productively, unlike the wasteful, loss-making public enterprises common under state control.
- Failure of central planning: heavy state control produced shortages, inefficiency, corruption and unsustainable budget deficits, so governments sought a market alternative.
- Encouragement of private investment and enterprise: secure property rights and the profit motive attract both domestic and foreign investors, creating jobs and output.
- Conditions of the IMF and World Bank: Structural Adjustment Programmes attached to loans required deregulation, privatisation and reduced subsidies.
- Wider consumer choice and better quality: competition among producers gives consumers more and better goods at competitive prices.
- Reduced burden on government: transferring production to the private sector frees scarce public funds for infrastructure, health and education.
- Faster economic growth: the incentive of profit and rewards for risk-taking stimulate innovation and higher national output.
In short, the free market is adopted mainly to raise efficiency, attract investment and correct the failures experienced under state-dominated economies.
Vraag 53 Verslag
(a) What is under-population?
(b) Under what conditions will it be advantageous for a country to promote population growth?
(a) Under-population is a situation in which a country's population is too small relative to its available resources (land, capital and natural resources) to make the best use of them. At this point the resources are not fully or efficiently exploited, and both per capita income and total output could rise if the population increased towards the optimum.
(b) It will be advantageous for such a country to promote population growth under the following conditions:
- Abundant unexploited resources: where large areas of fertile land and untapped natural resources remain idle for lack of labour to work them.
- Shortage of labour: where there are more jobs and productive opportunities than available workers, limiting output.
- Small domestic market: where the population is too small to support mass production, so a larger population widens demand and allows economies of scale.
- Underutilised capital and infrastructure: where factories, roads and social facilities are working below capacity for want of people to use them.
- Need for defence and security: where a larger population strengthens the labour force available for national defence.
- To reach the optimum population: where extra people would raise output per head, that is, where the country is below its optimum size.
Growth is advantageous only up to the optimum; beyond that point additional people cause over-population and falling output per head.
Antwoorddetails
(a) Under-population is a situation in which a country's population is too small relative to its available resources (land, capital and natural resources) to make the best use of them. At this point the resources are not fully or efficiently exploited, and both per capita income and total output could rise if the population increased towards the optimum.
(b) It will be advantageous for such a country to promote population growth under the following conditions:
- Abundant unexploited resources: where large areas of fertile land and untapped natural resources remain idle for lack of labour to work them.
- Shortage of labour: where there are more jobs and productive opportunities than available workers, limiting output.
- Small domestic market: where the population is too small to support mass production, so a larger population widens demand and allows economies of scale.
- Underutilised capital and infrastructure: where factories, roads and social facilities are working below capacity for want of people to use them.
- Need for defence and security: where a larger population strengthens the labour force available for national defence.
- To reach the optimum population: where extra people would raise output per head, that is, where the country is below its optimum size.
Growth is advantageous only up to the optimum; beyond that point additional people cause over-population and falling output per head.
Vraag 54 Verslag
Distinguish between a perfect market and a monopolistic market.
A perfect (perfectly competitive) market and a monopolistic (imperfectly competitive) market differ on several like features:
| Feature | Perfect market | Monopolistic market |
|---|---|---|
| Number of sellers | Very many sellers, each too small to affect price | One seller (pure monopoly) or few, so the seller has market power |
| Nature of product | Homogeneous (identical) products | Unique product with no close substitute |
| Price control | Firm is a price taker; price set by market demand and supply | Firm is a price maker/setter; can influence price |
| Entry and exit | Free entry and exit into the industry | Barriers to entry (patents, control of raw materials, large capital, law) |
| Knowledge | Perfect knowledge of market by buyers and sellers | Imperfect knowledge of the market |
| Demand curve facing the firm | Perfectly elastic (horizontal) at the ruling price | Downward sloping demand curve |
| Price and output | Lower price, larger output; normal profit in the long run | Higher price, smaller output; can earn abnormal (super-normal) profit in the long run |
In short, perfect competition has many sellers of an identical product who are price takers with free entry, while a monopoly has a single price-making seller of a unique product protected by barriers to entry.
Antwoorddetails
A perfect (perfectly competitive) market and a monopolistic (imperfectly competitive) market differ on several like features:
| Feature | Perfect market | Monopolistic market |
|---|---|---|
| Number of sellers | Very many sellers, each too small to affect price | One seller (pure monopoly) or few, so the seller has market power |
| Nature of product | Homogeneous (identical) products | Unique product with no close substitute |
| Price control | Firm is a price taker; price set by market demand and supply | Firm is a price maker/setter; can influence price |
| Entry and exit | Free entry and exit into the industry | Barriers to entry (patents, control of raw materials, large capital, law) |
| Knowledge | Perfect knowledge of market by buyers and sellers | Imperfect knowledge of the market |
| Demand curve facing the firm | Perfectly elastic (horizontal) at the ruling price | Downward sloping demand curve |
| Price and output | Lower price, larger output; normal profit in the long run | Higher price, smaller output; can earn abnormal (super-normal) profit in the long run |
In short, perfect competition has many sellers of an identical product who are price takers with free entry, while a monopoly has a single price-making seller of a unique product protected by barriers to entry.
Vraag 55 Verslag
What are the instruments used by the Central Bank to control the supply of money in any economy?
The Central Bank controls the money supply using two broad groups of instruments: quantitative (general) instruments and qualitative (selective) instruments.
Quantitative instruments (affect the total volume of credit):
- Open market operations (OMO): selling government securities to the public reduces the money supply; buying them back increases it.
- Bank (discount) rate: raising the rate at which the Central Bank lends to commercial banks makes borrowing dearer and contracts credit; lowering it expands credit.
- Cash reserve ratio: raising the proportion of deposits banks must keep with the Central Bank reduces their lendable funds and the money supply; lowering it does the reverse.
- Liquidity ratio: raising the minimum ratio of liquid assets banks must hold reduces the credit they can create.
- Special deposits: requiring banks to place extra deposits with the Central Bank withdraws funds from circulation.
Qualitative instruments (direct credit to particular uses):
- Selective credit control: directing banks to favour priority sectors (for example agriculture) and restrict others.
- Moral suasion: persuading and appealing to banks to follow the Central Bank's desired lending policy.
- Direct/legal directives: issuing binding instructions and setting credit ceilings on lending.
Antwoorddetails
The Central Bank controls the money supply using two broad groups of instruments: quantitative (general) instruments and qualitative (selective) instruments.
Quantitative instruments (affect the total volume of credit):
- Open market operations (OMO): selling government securities to the public reduces the money supply; buying them back increases it.
- Bank (discount) rate: raising the rate at which the Central Bank lends to commercial banks makes borrowing dearer and contracts credit; lowering it expands credit.
- Cash reserve ratio: raising the proportion of deposits banks must keep with the Central Bank reduces their lendable funds and the money supply; lowering it does the reverse.
- Liquidity ratio: raising the minimum ratio of liquid assets banks must hold reduces the credit they can create.
- Special deposits: requiring banks to place extra deposits with the Central Bank withdraws funds from circulation.
Qualitative instruments (direct credit to particular uses):
- Selective credit control: directing banks to favour priority sectors (for example agriculture) and restrict others.
- Moral suasion: persuading and appealing to banks to follow the Central Bank's desired lending policy.
- Direct/legal directives: issuing binding instructions and setting credit ceilings on lending.
Vraag 56 Verslag
(a) What is balance of payments deficit?
(b) How is it financed?
(a) Balance of payments (BOP) deficit. The balance of payments is a record of all economic transactions between a country and the rest of the world in a given year. A BOP deficit exists when a country's total payments to other countries (for imports of goods, services and capital outflows) exceed its total receipts from them (from exports and capital inflows). In other words, outflows of foreign exchange are greater than inflows, so the overall balance is unfavourable (negative).
(b) How a deficit is financed. A deficit must be settled by drawing on external means of payment, mainly:
- Running down external (foreign exchange) reserves: using accumulated reserves of gold and foreign currencies to pay the difference.
- Borrowing from abroad: loans from foreign governments, the IMF, the World Bank or the international capital market.
- Drawing on IMF facilities/Special Drawing Rights (SDRs): using the country's reserve position and SDR allocation at the Fund.
- Attracting foreign investment and aid: inflows of foreign private capital or grants help cover the gap.
- Sale of gold and foreign assets held abroad.
These are short-term financing measures; a lasting cure requires correcting the deficit itself, for example by boosting exports, cutting imports or devaluing the currency.
Antwoorddetails
(a) Balance of payments (BOP) deficit. The balance of payments is a record of all economic transactions between a country and the rest of the world in a given year. A BOP deficit exists when a country's total payments to other countries (for imports of goods, services and capital outflows) exceed its total receipts from them (from exports and capital inflows). In other words, outflows of foreign exchange are greater than inflows, so the overall balance is unfavourable (negative).
(b) How a deficit is financed. A deficit must be settled by drawing on external means of payment, mainly:
- Running down external (foreign exchange) reserves: using accumulated reserves of gold and foreign currencies to pay the difference.
- Borrowing from abroad: loans from foreign governments, the IMF, the World Bank or the international capital market.
- Drawing on IMF facilities/Special Drawing Rights (SDRs): using the country's reserve position and SDR allocation at the Fund.
- Attracting foreign investment and aid: inflows of foreign private capital or grants help cover the gap.
- Sale of gold and foreign assets held abroad.
These are short-term financing measures; a lasting cure requires correcting the deficit itself, for example by boosting exports, cutting imports or devaluing the currency.
Vraag 57 Verslag
| Countries | Population (in million) | Gross National product (in million Dollars) |
| R | 120 | 2,500 |
| S | 180 | 12,000 |
| T | 60 | 4,000 |
| U | 100 | 6,500 |
| V | 25 | 2,500 |
(a)(i) Calculate the per capita incomes of countries R, S, T, U and V.
(ii) Determine the range of the per capita incomes of the five countries.
(iii) Which one of the countries enjoyed the highest standard of living?
(b) Express the population of each of countries R, S, T, U and V as a percentage of the total population of all the countries.
(c) Draw a simple bar chart showing all the countries and their respective per capita incomes.
Solution
(a)(i) Per capita income
\[\text{Per capita income}=\frac{\text{GNP (million dollars)}}{\text{Population (million persons)}}\]
| Country | GNP (million dollars) | Population (million) | Per capita income (dollars) |
|---|---|---|---|
| R | 2,500 | 120 | \(\frac{2500}{120}=20.83\) |
| S | 12,000 | 180 | \(\frac{12000}{180}=66.67\) |
| T | 4,000 | 60 | \(\frac{4000}{60}=66.67\) |
| U | 6,500 | 100 | \(\frac{6500}{100}=65.00\) |
| V | 2,500 | 25 | \(\frac{2500}{25}=100.00\) |
(a)(ii) Range of per capita incomes
\[\$100.00-\$20.83=\boxed{\$79.17}\]
(a)(iii) Country V enjoyed the highest standard of living because it has the highest per capita income, \(\$100.00\).
(b) Percentage distribution of population
Total population \(=120+180+60+100+25=485\) million.
| Country | Calculation | Percentage of total population |
|---|---|---|
| R | \(\frac{120}{485}\times100\) | 24.74% |
| S | \(\frac{180}{485}\times100\) | 37.11% |
| T | \(\frac{60}{485}\times100\) | 12.37% |
| U | \(\frac{100}{485}\times100\) | 20.62% |
| V | \(\frac{25}{485}\times100\) | 5.15% |
| Total | 100.00% | |
(c) Simple bar chart of per capita incomes
Antwoorddetails
Solution
(a)(i) Per capita income
\[\text{Per capita income}=\frac{\text{GNP (million dollars)}}{\text{Population (million persons)}}\]
| Country | GNP (million dollars) | Population (million) | Per capita income (dollars) |
|---|---|---|---|
| R | 2,500 | 120 | \(\frac{2500}{120}=20.83\) |
| S | 12,000 | 180 | \(\frac{12000}{180}=66.67\) |
| T | 4,000 | 60 | \(\frac{4000}{60}=66.67\) |
| U | 6,500 | 100 | \(\frac{6500}{100}=65.00\) |
| V | 2,500 | 25 | \(\frac{2500}{25}=100.00\) |
(a)(ii) Range of per capita incomes
\[\$100.00-\$20.83=\boxed{\$79.17}\]
(a)(iii) Country V enjoyed the highest standard of living because it has the highest per capita income, \(\$100.00\).
(b) Percentage distribution of population
Total population \(=120+180+60+100+25=485\) million.
| Country | Calculation | Percentage of total population |
|---|---|---|
| R | \(\frac{120}{485}\times100\) | 24.74% |
| S | \(\frac{180}{485}\times100\) | 37.11% |
| T | \(\frac{60}{485}\times100\) | 12.37% |
| U | \(\frac{100}{485}\times100\) | 20.62% |
| V | \(\frac{25}{485}\times100\) | 5.15% |
| Total | 100.00% | |
(c) Simple bar chart of per capita incomes
Vraag 58 Verslag
What factors determine the size of a firm?
The size of a firm refers to the scale of its operations, usually measured by output, capital employed, number of workers or turnover. The main factors that determine it are:
- Size of the market: a large demand for the product allows a firm to grow big; a small or local market keeps it small.
- Availability of capital: firms that can raise large funds (through shares, loans or ploughed-back profits) can expand, while shortage of capital limits size.
- Nature of the product: goods needing large-scale, capital-intensive production (for example steel, cement) favour large firms, while personal or perishable services favour small firms.
- Economies and diseconomies of scale: a firm grows while internal economies (lower unit costs) continue, but stops expanding when diseconomies (management difficulties, poor coordination) set in.
- Ability and efficiency of management: skilled, capable management can control a large organisation; weak management limits growth.
- Government policy: laws, taxes, subsidies and anti-monopoly regulation can encourage or restrict expansion.
- Availability of raw materials and infrastructure: steady supplies of inputs, power and transport support large-scale operation.
- Technology used: advanced, indivisible machinery encourages large-scale production; simple technology suits small firms.
Antwoorddetails
The size of a firm refers to the scale of its operations, usually measured by output, capital employed, number of workers or turnover. The main factors that determine it are:
- Size of the market: a large demand for the product allows a firm to grow big; a small or local market keeps it small.
- Availability of capital: firms that can raise large funds (through shares, loans or ploughed-back profits) can expand, while shortage of capital limits size.
- Nature of the product: goods needing large-scale, capital-intensive production (for example steel, cement) favour large firms, while personal or perishable services favour small firms.
- Economies and diseconomies of scale: a firm grows while internal economies (lower unit costs) continue, but stops expanding when diseconomies (management difficulties, poor coordination) set in.
- Ability and efficiency of management: skilled, capable management can control a large organisation; weak management limits growth.
- Government policy: laws, taxes, subsidies and anti-monopoly regulation can encourage or restrict expansion.
- Availability of raw materials and infrastructure: steady supplies of inputs, power and transport support large-scale operation.
- Technology used: advanced, indivisible machinery encourages large-scale production; simple technology suits small firms.
Vraag 59 Verslag
(a) Explain the concept of diminishing marginal utility.
(b) How is utility maximized?
(a) Diminishing marginal utility. Utility is the satisfaction a consumer gets from consuming a good. Marginal utility is the extra satisfaction from consuming one more unit. The law of diminishing marginal utility states that as a consumer takes in successive units of a good within a given period, the extra (marginal) satisfaction from each additional unit falls, other things being equal. For example, the first cup of water to a thirsty person gives high satisfaction, the second less, and later cups very little or even negative satisfaction. Total utility still rises while marginal utility is positive, reaches a maximum when marginal utility is zero, and falls when marginal utility becomes negative.
(b) How utility is maximised. A rational consumer with a fixed income and given prices maximises satisfaction by allocating spending so that the last naira spent on each good yields the same marginal utility. This is the equi-marginal principle: consumption is adjusted until
\[ \frac{MU_x}{P_x} = \frac{MU_y}{P_y} = \frac{MU_z}{P_z} \]
where \( MU \) is marginal utility and \( P \) is price of each good. If the ratio for one good is higher, the consumer gains by buying more of it (its marginal utility falls) and less of another, until the ratios are equal and total utility can no longer be increased by any reshuffle of spending.
Antwoorddetails
(a) Diminishing marginal utility. Utility is the satisfaction a consumer gets from consuming a good. Marginal utility is the extra satisfaction from consuming one more unit. The law of diminishing marginal utility states that as a consumer takes in successive units of a good within a given period, the extra (marginal) satisfaction from each additional unit falls, other things being equal. For example, the first cup of water to a thirsty person gives high satisfaction, the second less, and later cups very little or even negative satisfaction. Total utility still rises while marginal utility is positive, reaches a maximum when marginal utility is zero, and falls when marginal utility becomes negative.
(b) How utility is maximised. A rational consumer with a fixed income and given prices maximises satisfaction by allocating spending so that the last naira spent on each good yields the same marginal utility. This is the equi-marginal principle: consumption is adjusted until
\[ \frac{MU_x}{P_x} = \frac{MU_y}{P_y} = \frac{MU_z}{P_z} \]
where \( MU \) is marginal utility and \( P \) is price of each good. If the ratio for one good is higher, the consumer gains by buying more of it (its marginal utility falls) and less of another, until the ratios are equal and total utility can no longer be increased by any reshuffle of spending.
