WAEC SSCE - Economics - 1994

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The difference between Gross Domestic Product (GDP) and Gross National Product (GNP) is the net income from abroad. GDP is the total value of goods and services produced within a country's borders in a given period, regardless of the nationality of the producers, while GNP is the total value of goods and services produced by a country's citizens, regardless of their location, in a given period. GNP takes into account net income earned abroad by a country's citizens and businesses, while GDP does not. Therefore, if a country has a positive net income from abroad, its GNP will be higher than its GDP, and if it has a negative net income from abroad, its GNP will be lower than its GDP.

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Abstention from consumption is called savings. Savings refers to the portion of income or resources that are not immediately consumed but are set aside for future use. When individuals or businesses save, they forego current consumption in order to invest in capital goods, such as machinery, equipment, or buildings. This, in turn, makes it possible to increase productivity and generate more income in the future. In other words, savings is a crucial factor in the process of capital accumulation, which is essential for economic growth and development. Therefore, the correct answer is (a) savings.

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The measures of central tendency are used in statistics to summarize a set of data by identifying the central position of the data set. The three common measures of central tendency are mean, median, and mode. Out of the given options, "Median and percentage" is not a set of measures of central tendency. The median is a measure of central tendency that identifies the middle value of a data set when arranged in order, while percentage is a measure of relative frequency. Therefore, they are not related concepts and cannot be used together as a set of measures of central tendency.

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In Economics, factory buildings, machinery and raw materials are known as business wealth. Business wealth refers to the assets owned by a business that are used to produce goods or services for sale. These assets include tangible assets such as buildings, machinery, and equipment, as well as intangible assets such as patents and trademarks. Business wealth is important for the growth and success of a business, as it allows the business to produce goods or services efficiently and effectively, and to compete with other businesses in the market.

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The national income of a country is a measure of the total value of goods and services produced by the country in a given period of time. The magnitude of the national income of a country depends on several factors such as the quantity of natural resources available, the level of technical know-how, the mobility of labor, the level of productivity, and the quality and quantity of factors of production. However, the one factor that does not affect the magnitude of national income is the mobility of labor. While labor mobility can affect the efficiency of production and distribution of goods and services, it does not directly impact the total value of goods and services produced by a country.

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NEPA (National Electric Power Authority) as a public corporation in Nigeria is a monopoly. This means that it is the only company that produces and distributes electricity in Nigeria. There is no competition from other companies in the same industry. As a result, NEPA has a significant influence on the electricity market in Nigeria, including setting prices and determining the amount of electricity to be generated and distributed.

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The function of money that makes it possible for any person to provide for old age is "store of value." This means that money can be saved or invested in various forms and held over time, without losing its purchasing power. In other words, money can be stored or "saved" for future use, such as during retirement, when the person may no longer be earning a regular income. The other functions of money, such as medium of exchange, measure of value, unit of account, and standard for deferred payment, do not directly relate to the ability to provide for old age.

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To the economist, a stock of goods existing at a particular time that possesses certain attributes like having utility (usefulness), money value, and limited supply is called "wealth." Wealth includes tangible assets like money, land, buildings, and personal property like vehicles, furniture, and equipment. It also includes intangible assets like stocks, bonds, and intellectual property. Wealth is important in economics because it is the basis for economic activity and growth. It is used to generate income, invest in new ventures, and to acquire goods and services.

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If Mr. Idowu buys the television, he would have no money left to buy the refrigerator. Therefore, the cost of the refrigerator is the opportunity cost of buying the television. In other words, the opportunity cost is the value of the next best alternative that has to be forgone in order to pursue a certain action or decision.

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Under normal circumstances, the decision to consume more of one product implies that less of something else will be consumed. This is because resources (such as money or time) are limited and a decision to consume more of one product means there are fewer resources available to consume other products. As a result, individuals must make trade-offs between consuming different goods and services. Therefore, the decision to consume more of one product results in a decrease in the consumption of another product, all other things being equal.

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The main function of an entrepreneur is to bear risks and exercise managerial control. An entrepreneur is an individual who starts a new business venture, takes risks, and manages the business. Risk bearing is the willingness of an entrepreneur to take on financial risks associated with starting a new business or investing in an existing one. Managerial control refers to the ability of an entrepreneur to manage and control the operations of the business effectively. The entrepreneur is responsible for making important decisions, such as determining the product or service to offer, setting prices, and managing the company's finances. Ultimately, the success of the business depends on the entrepreneur's ability to manage risk and exercise effective managerial control.

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The pair that can be referred to as middlemen are "Wholesalers and retailers." Middlemen are intermediaries that connect producers with consumers. They purchase goods from manufacturers in large quantities, store them in warehouses, and then sell them to retailers in smaller quantities. Retailers then sell the products to consumers. Wholesalers and retailers are considered middlemen because they are in the middle of the supply chain between manufacturers and consumers. They provide value by making products available to consumers in a convenient and accessible manner.

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The primary objective of Agricultural Credit Guarantee Scheme is the provision of a guarantee for loans granted by banks for agricultural purposes. This means that the scheme is designed to encourage and facilitate lending to farmers for agricultural activities by providing a guarantee to the lending banks against default. This helps to mitigate the risks associated with agricultural lending, and thereby increase the availability of credit to farmers. The scheme does not provide agricultural inputs or products directly, nor does it provide credit directly to farmers. Its focus is on facilitating lending by providing guarantees to lending banks.

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The Quantity Theory of Money states that an increase in the quantity of money in circulation will result in a proportionate increase in the general price level of goods and services in an economy. This means that the more money there is in circulation, the higher the prices of goods and services will be. Therefore, the correct answer is "a proportionate rise in prices".

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The central bank has various tools to regulate and control the commercial banks in a country. These measures include directives, bank rate, open market operations, accepting deposits, and demanding special deposits. However, among the options provided, the measure that the central bank does not use to control commercial banks is accepting deposits. Accepting deposits is a commercial bank's function of mobilizing funds from the public and not a measure used by the central bank to regulate the commercial banks.

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The concept being described is known as the "law of diminishing returns" or the "law of diminishing returns of a variable factor". This law states that if the input of one factor of production (such as labor) is increased while keeping all other inputs constant (such as capital and technology), there comes a point beyond which the marginal product of that factor will start to decrease. In other words, each additional unit of labor will add less to the total output than the previous unit. This is due to factors such as limited space, lack of resources, or the inability of the other factors to complement the added labor. This concept is important in determining the optimal level of production for a business or industry.

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The definition of economics as "the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses" was given by Lionel Robbins. Lionel Robbins was a British economist who lived between 1898 and 1984. He was one of the leading figures in the development of economics as a science in the 20th century. He is best known for his book "An Essay on the Nature and Significance of Economic Science," in which he defined economics in the above-mentioned way. His definition emphasizes the importance of scarcity in economics and the need for individuals and societies to make choices among alternative uses of limited resources.

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The option that is not an advantage of government ownership of enterprises is "Government workers may be indifferent towards the public." This is because government workers are expected to be accountable and responsive to the public they serve. Indifference to the public can lead to poor service delivery, which is not an advantage of government ownership of enterprises. The other options provided are advantages of government ownership, such as providing more capital, developing infrastructure, promoting equitable distribution of income, and implementing pricing policies in the interest of consumers.

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If a person is using their past savings to make up for a shortfall in their current income, they are said to be living on their savings. This means that they are not earning enough money to cover their expenses and are relying on their savings to maintain their current lifestyle. While it may help them in the short term, it is not a sustainable way of living as eventually, their savings will run out. It is important to manage one's finances carefully and plan for unexpected expenses to avoid having to rely on savings to cover regular expenses.

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The difference between the number of immigrants (people moving into a country) and emigrants (people moving out of a country) is known as net migration. It represents the net gain or loss of population due to migration, and can be positive (more people entering the country than leaving) or negative (more people leaving the country than entering). Net migration is an important factor in determining the population growth or decline of a country or region.

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The concept of economic efficiency primarily implies containing the maximum output from available resources at the lowest possible cost. In other words, it means producing goods and services in the most efficient manner possible, with the least amount of waste or inefficiency, in order to maximize the benefits that can be obtained from the resources available. The goal of economic efficiency is to ensure that resources are used in the most productive way possible to meet the needs and wants of society. It is an important concept in economics because it helps to ensure that resources are used in a way that provides the greatest benefit to society as a whole.

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The Nigerian household demand curve for semovita is downward sloping because the higher the price of semovita, the lower the quantity demanded. This means that when the price of semovita is high, households will demand less of it. This is because as the price of semovita increases, it becomes relatively more expensive compared to other substitute food items, and households may switch to those substitutes or reduce their overall consumption of semovita. Therefore, the demand curve for semovita slopes downwards, indicating an inverse relationship between price and quantity demanded.

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Limited liability means that the debt of a company can only be paid from its own assets. This means that the owners of the company (shareholders) are only responsible for the amount of money they have invested in the company and not for any additional debt the company may have. If the company goes bankrupt, the shareholders will not lose any more money than the value of their investment. This feature of limited liability is an important advantage of forming a company, as it reduces the financial risk for investors and encourages entrepreneurship.

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Commercial banks play a significant role in the economy by accepting deposits from customers and using them to provide loans to businesses and individuals. This function is known as "intermediation," which means they act as intermediaries between savers and borrowers. The banks also provide a range of other services, such as processing payments, offering credit cards, and providing financial advice. Therefore, one of the functions of a commercial bank is accepting demand and time deposits from customers.

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If the foreign exchange rate is N80 to £1, then to convert the cost of a bicycle bought for £40 to Naira, we need to multiply the pounds by the exchange rate in Naira. £40 * N80/£1 = N3,200. Therefore, the bicycle bought for £40 will cost N3,200. So, the correct option is: N320.00.

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Foreign exchange control in Nigeria is enforced by the Central Bank of Nigeria (CBN). The CBN is responsible for managing the country's monetary policy and regulating the supply and demand of foreign currency in the Nigerian economy. The CBN implements foreign exchange control policies to manage the inflow and outflow of foreign currency, to stabilize the exchange rate, and to ensure that there is enough foreign currency to meet the country's import needs. Through these measures, the CBN seeks to maintain the stability of the Nigerian economy and safeguard the value of the country's currency.

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The question is asking which of the following options is not a problem of the distribution of goods in Nigeria. The option that is not a problem of distribution of goods in Nigeria is: "ignorance of consumers." Explanation: The other options are actual problems faced in the distribution of goods in Nigeria. - Poor communication network: This is a problem as it makes it difficult to communicate with suppliers, distributors, and retailers. It also affects the speed of delivery and can cause delays in the distribution process. - Inadequate storage facilities: This is a problem as it makes it difficult to store goods in good condition for long periods. This can result in spoilage and wastage of goods. - Dishonesty of middlemen: This is a problem as it results in the inflation of prices, and the diversion of goods meant for one area to another area where it can fetch a higher price. - Inadequate market: This is a problem as it limits the number of potential customers that a business can reach, and can lead to unsold goods. "Ignorance of consumers" is not a problem in the distribution of goods in Nigeria as consumers are generally aware of the products they need and can easily access information on products through various means such as advertisements, word of mouth, and the internet.

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When a firm's total revenue is at the maximum, the marginal revenue is zero. This means that the last unit of output sold is generating no additional revenue for the firm. Marginal revenue is the change in total revenue that results from a one-unit increase in output, and when it is zero, it indicates that any further increase in output will not increase the firm's total revenue. In other words, the firm has reached the point of maximum profit where the cost of producing additional units of output would exceed the additional revenue generated from selling them. Therefore, to maximize profit, the firm should produce the quantity of output where marginal revenue equals marginal cost.

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Petrochemicals are chemical products that are derived from petroleum, which is a crude oil found in the ground. Rivers State in Nigeria is known for the presence of oil deposits. Therefore, it is natural to have petrochemical industries located in Rivers State because they have easy access to crude oil. These industries use crude oil as their primary raw material for producing petrochemical products such as plastics, synthetic fibers, and solvents. The proximity of the petrochemical industries to the source of their raw materials saves on transportation costs and time. This is why Rivers State is an attractive location for petrochemical industries in Nigeria.

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Mono-products economics are those that produce only one main commodity. These economies depend on the exportation of this commodity for their revenue, and often have a limited range of industries. Examples of mono-product economies include countries that rely heavily on the exportation of oil or minerals. As a result, these economies are vulnerable to fluctuations in the global market for their main commodity, and can experience significant economic hardship if the price of their commodity declines.

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A situation of full employment exists when all persons who are able and willing to work and who are eligible for employment, are employed. It means that there is no involuntary unemployment in the economy, and the level of unemployment is at its natural rate, which is the minimum level that is consistent with stable prices and a healthy economy. Full employment does not mean that every adult or every person of working age is employed, as some people may choose not to work or may not be able to work due to disability or other reasons.

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(a) Capital market. The capital market is the market for the buying and selling of long-term securities, that is, financial instruments with a maturity of more than one year, such as shares, debentures, bonds and government stocks. It provides long-term funds to firms and governments and is made up of a primary market (where new securities are first issued) and a secondary market (where existing securities are resold), together with institutions such as the stock exchange, development banks, insurance companies and issuing houses.

(b) How the capital market differs from the stock exchange. The stock exchange is only part of the capital market. The stock exchange is the organised secondary market where existing (already issued) securities are bought and sold. The capital market is wider: it includes the stock exchange plus the primary market for new issues and the other institutions that supply long-term funds. In short, every stock exchange is part of the capital market, but the capital market is much more than the stock exchange.

(c) Advantages of the capital market:

• It mobilises long-term savings and channels them into productive investment.
• It provides long-term capital for firms and governments to finance expansion and development projects.
• The secondary market gives securities liquidity, so investors can sell when they need cash, which encourages people to invest.
• It encourages the saving and investment habit and widens share ownership.
• It provides a channel for privatisation and for attracting foreign investment.

Examination takeaway: the key distinction in (b) is scope, the stock exchange handles existing long-term securities, while the capital market covers new issues as well and the whole set of long-term-fund institutions.

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(a) Price elasticity of demand measures the degree of responsiveness of the quantity demanded of a good to a change in its price. It is given by \( E_d = \dfrac{\%\,\text{change in quantity demanded}}{\%\,\text{change in price}} \).

(b)(i) Elasticity of demand when price rises from N10.00 to N11.00. Quantity demanded falls from 1000 to 950.

\[ \%\,\Delta Q_d = \frac{950-1000}{1000}\times100 = -5\% \qquad \%\,\Delta P = \frac{11-10}{10}\times100 = 10\% \]

\[ E_d = \frac{5}{10} = 0.5 \]

(b)(ii) Since \( E_d = 0.5 < 1 \), the demand is inelastic.

(b)(iii) Elasticity of supply when price falls from N10.00 to N9.00. Quantity supplied falls from 1000 to 850.

\[ \%\,\Delta Q_s = \frac{850-1000}{1000}\times100 = -15\% \qquad \%\,\Delta P = \frac{9-10}{10}\times100 = -10\% \]

\[ E_s = \frac{15}{10} = 1.5 \]

(b)(iv) Since \( E_s = 1.5 > 1 \), the supply is elastic.

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The International Monetary Fund (IMF) is a specialised agency of the United Nations set up in 1944 (Bretton Woods) to promote international monetary cooperation and orderly exchange arrangements. Its main functions are:

• Correcting balance of payments disequilibrium. It grants short-term and medium-term loans to member countries facing temporary balance of payments deficits, so that they can meet their international obligations without resorting to harmful trade restrictions.
• Promoting exchange-rate stability. It works to keep member currencies' exchange rates orderly and to discourage competitive devaluations that disrupt trade.
• Promoting international monetary cooperation. It provides a forum where member countries consult and collaborate on international monetary problems.
• Expanding world trade. By helping members settle payments and by encouraging the removal of exchange restrictions, it promotes the balanced growth of international trade, which raises income and employment.
• Providing international liquidity. It acts as a pool (reservoir) of members' currencies and creates Special Drawing Rights (SDRs) to supplement world reserves.
• Giving technical assistance and advice. It offers members expert advice on fiscal, monetary and exchange policy and carries out surveillance of their economies.

Examination takeaway: anchor your answer on the IMF's central purpose (curing balance of payments problems and keeping exchange rates stable) and separate it clearly from the World Bank, which finances long-term development projects.

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Primary production means the extractive activities that draw raw materials directly from nature, such as farming, mining, fishing and lumbering. Most West African economies earn the bulk of their income from a few unprocessed primary exports (cocoa, groundnut, crude oil, timber). This narrow dependence creates several economic problems.

• Price instability and unstable income. Prices of primary commodities fluctuate sharply on the world market because both demand and supply are inelastic. A poor harvest or a global glut swings export earnings wildly, making national income and government revenue unpredictable and planning difficult.
• Unfavourable terms of trade. The prices of primary exports tend to rise slowly (or fall) while the prices of the manufactured goods these countries import keep rising. A given quantity of exports therefore buys fewer imports over time, transferring real income abroad.
• Low income elasticity of demand. As world incomes rise, demand for foodstuffs and raw materials grows only slowly, so export earnings do not expand as fast as the country's need for imports.
• Balance of payments problems. Because export receipts are small and unstable while imports of manufactures and capital goods keep growing, these economies frequently run current-account deficits and pile up external debt.
• Low value added and slow industrial growth. Selling raw materials rather than finished goods means the value that would have been created by processing is captured abroad, so manufacturing, technology and skilled employment remain underdeveloped.
• Vulnerability to nature and to foreign control. Output depends on weather, pests and disease, and the volume and price are largely determined by foreign buyers, leaving the economy exposed and dependent.
• Unemployment and underemployment. Primary activities are seasonal, so labour is idle in the off-season, and mechanised mining employs few people.

Examination takeaway: group your points around price instability, unfavourable terms of trade, balance of payments strain and weak industrialisation, and explain why each follows from selling unprocessed primary goods rather than simply listing them.

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Money is anything that is generally acceptable as a medium of exchange and in the final settlement of debts. Its acceptability, rather than the material it is made of, is what makes it money.

Characteristics (qualities) of good money:

• General acceptability. It must be freely accepted by everyone in exchange for goods and services; this is the most important quality.
• Durability. It should last long and not wear out or perish quickly, so it can circulate repeatedly.
• Portability. It should be easy to carry about, so that large value can be moved without difficulty.
• Divisibility. It must be capable of being divided into smaller units without losing value, so it can pay for both cheap and costly items.
• Homogeneity (uniformity). Units of the same denomination must be identical in quality and value.
• Relative scarcity. It must be limited in supply; if it were too plentiful it would lose value.
• Stability of value. Its purchasing power should not change too sharply, so that people trust it as a store of value.
• Recognisability (cognisability). It should be easy to identify and difficult to forge.

Examination takeaway: define money by its function (general acceptability as a medium of exchange), then list the qualities and add one line explaining why each quality matters, rather than naming them bare.

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(a) National debt. The national (public) debt is the total amount of money owed by the government of a country to its creditors, both at home and abroad, at a given point in time. It arises when the government repeatedly spends more than it receives in revenue and borrows to cover the deficits; the accumulated borrowing, together with the interest owed on it, forms the national debt.

It has two parts: the internal debt (owed to individuals, banks and institutions within the country) and the external debt (owed to foreign governments and institutions such as the World Bank).

(b) Four instruments of government borrowing in Nigeria:

1. Treasury bills short-term instruments (usually 91 days) sold to raise funds for a few months.
2. Treasury certificates medium-term instruments running for one to two years.
3. Federal Government development stocks (bonds) long-term securities used to raise money for development projects.
4. Ways and Means advances short-term borrowing by the government from the Central Bank to meet temporary cash shortfalls.

Examination takeaway: in part (b) name the actual instruments (bills, certificates, bonds, advances), not the general sources such as "the public" or "foreign countries".

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We treat ages 17 to 60 as the working population and the rest (0 to 16 and above 60) as the dependent population (in thousands).

(a) Percentage increase in the working population, 1955 to 1960:

\[ \frac{140-80}{80}\times100 = \frac{60}{80}\times100 = 75\% \]

(b) Ratio of dependent to working population in 1955:

\[ 165 : 80 = 33 : 16 \approx 2.06 : 1 \]

(c) Ratio of dependent to working population in 1960:

\[ 160 : 140 = 8 : 7 \approx 1.14 : 1 \]

(d) The dependency ratio has decreased, falling from about 2.06 : 1 in 1955 to about 1.14 : 1 in 1960. Fewer dependants are now supported by each working person, because the working-age group grew sharply (up 75%) while the dependent group stayed roughly the same.

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This statement describes how a free market reaches equilibrium. The equilibrium price is the price at which the quantity that buyers wish to buy exactly equals the quantity that sellers wish to sell. Price tends to settle at this level because, whenever it is above or below equilibrium, market forces automatically push it back.

When price is above the equilibrium level: quantity supplied exceeds quantity demanded, so there is a surplus (excess supply). Sellers are left with unsold goods, so they compete by lowering their prices to clear stock. As the price falls, quantity supplied falls and quantity demanded rises, and the surplus shrinks. The price keeps falling until supply again equals demand.

When price is below the equilibrium level: quantity demanded exceeds quantity supplied, so there is a shortage (excess demand). Buyers compete for the limited goods and bid the price up. As the price rises, quantity demanded falls and quantity supplied rises, and the shortage shrinks. The price keeps rising until supply again equals demand.

Only at the equilibrium price is there neither surplus nor shortage, so there is no pressure for the price to change; the market is said to clear. This self-correcting behaviour of demand and supply is why economists say price tends towards the level which equates supply with demand. We can summarise it as:

• Price above equilibrium \(\Rightarrow\) surplus \(\Rightarrow\) price falls.
• Price below equilibrium \(\Rightarrow\) shortage \(\Rightarrow\) price rises.
• Price at equilibrium \(\Rightarrow\) quantity demanded \(=\) quantity supplied \(\Rightarrow\) price stable.

Graphically, equilibrium is the point where the demand curve and the supply curve cross; away from that point the gap between the curves creates the surplus or shortage that drives the price back towards it.

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Both are joint-stock companies formed by registration (incorporation) under the Companies Act, so they share several features before we look at their differences.

Similarities. Each is an incorporated body with a separate legal personality from its owners; the shareholders enjoy limited liability (they lose only what they invested); each has perpetual succession (it continues despite death of members); each is owned by shareholders but run by a board of directors.

Differences.

Examination takeaway: a "compare and contrast" answer must give both the shared features and the point-by-point differences on the same characteristic (membership vs membership, shares vs shares); a table earns marks cleanly.

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(a) Main features of the Malthusian theory of population. Thomas Malthus (1798) argued that:

• Population, when unchecked, grows in a geometric progression (1, 2, 4, 8, 16 ...), roughly doubling every 25 years.
• The means of subsistence (food) can grow only in an arithmetic progression (1, 2, 3, 4, 5 ...) because land is fixed and subject to diminishing returns.
• Population therefore tends to outrun the food supply, pushing living standards down to subsistence level.
• The imbalance is corrected by positive checks that raise the death rate (famine, disease, war) and preventive checks that lower the birth rate (moral restraint, late marriage, celibacy).

(b) Developments that make the theory less relevant today.

• Agricultural revolution. Improved seeds, fertilisers, irrigation and mechanisation (the Green Revolution) have raised food output far faster than arithmetically, disproving the fixed-food assumption.
• Birth control. Modern contraception and family-planning programmes now limit births, something Malthus (who allowed only moral restraint) did not foresee.
• Opening of new lands and international trade. Countries can import food and settle new regions, so a nation's population is no longer tied to its own land.
• Industrialisation and rising incomes. Economic growth has raised living standards, and the demographic transition shows that richer, educated societies choose smaller families, so birth rates fall as income rises.
• Improved transport and medicine. Food can be moved quickly to shortage areas, and better health has changed the pattern of the positive checks.

Examination takeaway: note that the theory is not wholly dead. It still describes some poor, high-birth-rate economies, so a balanced answer says why technology, trade and birth control weakened its general validity.