JAMB UTME - Economics - 2024

Maelezo ya Majibu

The concept we are discussing here is the Price Elasticity of Demand (PED). It measures how much the quantity demanded of a commodity changes with a change in its price. The formula for calculating the price elasticity of demand is:

PED = (% Change in Quantity Demanded) / (% Change in Price)

First, we calculate the percentage change in quantity demanded:

• Initial quantity demanded = 100 units
• New quantity demanded = 80 units
• Change in quantity demanded = New quantity demanded - Initial quantity demanded = 80 - 100 = -20 units

Percentage change in quantity demanded:

= (Change in quantity demanded / Initial quantity demanded) × 100

= (-20 / 100) × 100 = -20%

Next, calculate the percentage change in price:

• Initial price = N8.00
• New price = N10.00
• Change in price = New price - Initial price = N10.00 - N8.00 = N2.00

Percentage change in price:

= (Change in price / Initial price) × 100

= (2 / 8) × 100 = 25%

Now, we can substitute these values into the formula for PED:

PED = (% Change in Quantity Demanded) / (% Change in Price)

= (-20%) / (25%)

= -0.8

The price elasticity of demand is -0.8. The negative sign indicates that there is an inverse relationship between price and quantity demanded, which is normal for most goods. This value rounded to the nearest value provided in your options is 0.8. This implies it is inelastic demand, meaning the quantity demanded is not very responsive to price changes.

The comparison of the standard of living between Nigeria and Ghana is best down through the use of

Maelezo ya Majibu

To effectively compare the standard of living between Nigeria and Ghana, the most suitable method is through the use of per capita income. Let me explain why this is considered the best approach:

Per Capita Income is a measure that calculates the average income earned per person in a specific country or region in a given year. It is determined by dividing the country's total income by its population. This method provides a clear indicator of how much income, on average, each individual has, which gives insight into the general well-being and standard of living of the population.

Let's break it down further:

• Gross National Income: While it provides information about the total income of a country including foreign earnings, it does not account for distribution across the population. It may also include incomes that are not directly improving the local living standards.
• Net National Income: This takes into account depreciation but still does not efficiently measure what each individual is earning or living on.
• Net Disposable Income: This provides information about the income available to countries after taxes and transfers, yet doesn't offer a per-person analysis.

In contrast, per capita income specifically focuses on the income available to each person, thus offering a more direct reflection of the purchasing power and financial well-being of an individual within these countries. Therefore, when comparing the standard of living between Nigeria and Ghana, per capita income is a more practical and clearer measure.

In the equation Q = a - bp + e; Q and P are ... Variables respectively.

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In the given equation Q = a - bp + e, we need to understand the roles of the variables Q and P.

In any equation where we are trying to establish a relationship between two variables, one of the variables is usually controlled or changed deliberately, while the other one is observed as it changes in response. In such equations:

• The **independent variable** is the one that you control or change to see how it affects another variable. It is like the **cause** or **input**.
• The **dependent variable** is the one that changes as a result of the changes in the independent variable. It is like the **effect** or **output**.

In the equation Q = a - bp + e, **Q** is the outcome or result that we observe, and it depends on the value of **P**. Thus, **Q is the dependent variable** because it changes depending on the values of **P**. Conversely, **P** is the one that we can change or manipulate in the context of this equation, so **P is the independent variable**.

Therefore, the correct description for **Q** and **P** is that Q is the **dependent** variable, and P is the **independent** variable.

The satisfaction derived from the consumption of a commodity is referred to as

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The satisfaction derived from the consumption of a commodity is referred to as utility. To explain this concept further, let's break it down:

Utility is an economic term that describes the pleasure, happiness, or satisfaction a consumer gets from consuming goods and services.

Here’s why it is the correct term:

• When you purchase or consume something, like a snack or a service, the positive feelings or fulfillment you get is called its utility.
• The concept of utility is used in economics to understand consumer behavior, such as how much of a product consumers might be willing to buy at different prices, based on the satisfaction they expect to gain.
• Increasing or maximizing one's utility often drives decisions, as individuals usually aim to derive the most satisfaction from their choices.

In summary, whenever we talk about the satisfaction from using or consuming goods, we are discussing the concept of utility.

An exceptional demand curve can result from

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An exceptional demand curve occurs when demand does not follow the typical downward slope from left to right. Instead, the demand curve may slope upward. Let’s consider some scenarios that could lead to this unusual situation.

Increase in Price of Raw Materials: This typically affects the supply side rather than the demand side. When prices of raw materials increase, production costs go up, possibly reducing supply, but not necessarily impacting demand directly. Therefore, this is not usually a reason for an exceptional demand curve.

Change in Taste of Consumer: If consumers suddenly prefer a particular product, they may be willing to buy more even if the price rises. This shift in consumer preferences can lead to an upward-sloping demand curve, reflecting increased demand despite higher prices.

Increase in the Size of the Population: More people can lead to higher overall demand, but each individual’s demand curve typically still slopes downward due to the law of diminishing marginal utility. Therefore, population increase alone generally does not cause an exceptional demand curve.

Expectation of Future Price Increase: When consumers expect prices to rise in the future, they may choose to buy more now to avoid paying higher prices later. This situation can lead to an upward-sloping demand curve as current demand increases with rising prices, due to future price expectations.

In summary, an exceptional demand curve is usually caused by changes in consumer tastes or expectations of future price increases, making current demand behave in an unexpected way compared to the usual downward slope.

When an increase in the price of a commodity lead to a fall In the demand for another, the demand for the two commodities are said to be

Maelezo ya Majibu

Competitive demand refers to a situation where two or more goods are seen as substitutes for each other. When the pric of one commodity increases, consumers tend to shift their demand towards the substitute commodity, resulting in a decrease in the demand for the original commodity.
For example, if the price of coffee increases significantly, some consumers may choose to switch to tea as a substitute. A: a result, the demand for coffee decreases while the demand for tea increases.

When the total product starts falling, then the marginal product is

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In the context of production, the Total Product (TP) refers to the total quantity of output produced by a firm. The Marginal Product (MP) is the additional output obtained by employing one more unit of a specific input, while keeping all other inputs constant.

When the Total Product starts to fall, it indicates that each additional unit of input is contributing less and less to the total output, to the extent that the output is actually decreasing. This means that any added input is no longer producing additional output but instead reducing it. Therefore, the Marginal Product in this situation is actually negative.

Here is why:

• Consider the scenario where adding extra workers or resources does not increase output, and might even disrupt production.
• At this point, the contribution of added input becomes detrimental, causing a decline in the total output.
• Thus, the Marginal Product turns negative, because the next unit of input is not just unproductive, it makes the overall production lower than before.

The demand for factors of production is said to be

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In economics, the demand for factors of production is best described as being derived. What this means is that the demand for these factors, like labor, land, and capital, is not for their own sake but because of the demand for the goods and services they can produce.

To put it simply, businesses need these factors of production to create products. If there is a high demand for a particular product, there will naturally be a higher demand for the factors needed to produce that product. Conversely, if there is little to no demand for a product, then the demand for the factors required to produce it will also decrease.

For example, if there is a high demand for cars, a car manufacturing company will need more metal, labor, and machinery, which are the factors of production, to make more cars. Thus, the demand for these factors is based on, or derived from, the demand for the cars themselves.

From the diagram below, the equilibrium wage rate is

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The equilibrium wage rate is achieved when the demand for labour equals the supply of labour in a particular labour market. At this point, there is no excess demand or excess supply of labour, and the market is in balance.
From the diagram above, the equilibrium wage rate is W2.

The following are type of business organization EXCEPT

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In the context of business organizations, the term that stands out as not fitting among the others is **Entrepreneurship**.

To understand why, let's briefly define each term:

• Co-operative Society: This is a type of business organization owned and operated by a group of individuals for their mutual benefit. Co-operatives are often established in sectors like agriculture or retail, where members pool resources to achieve common goals, such as better marketing of their products.
• Partnership: This refers to a business organization where two or more individuals manage and operate a business together, sharing profits, liabilities, and responsibilities. Partnerships are common in professional practices like law firms or medical practices.
• Public Corporation: A public corporation is a business entity that has been incorporated through a legal process and issues shares to the public through a stock exchange. Shareholders own the corporation, and it is usually distinguished by being large and having significant public presence, such as multinational companies.
• Entrepreneurship: While entrepreneurship involves starting and operating a business, it is not a formal type of business organization like the others. Instead, it refers to the process and activities undertaken by an entrepreneur to establish a new enterprise or bring a new idea to market.

Thus, the odd one out is Entrepreneurship, because it describes the activity of establishing and managing a business rather than being a structured form of business organization like the others mentioned.

Producers operating in a free market economy are more efficient as a result of

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In a free market economy, multiple producers are allowed to enter the market and compete with each other. This competition creates incentives for producers to become more efficient in order to gain a competitive advantage. When producers compete, they strive to offer better quality products, lower prices, and improved customer service. To achieve these goals, they need to find ways to reduce costs, increase productivity, and innovate. The pressure of competition encourages producers to constantly improve their efficiency to attract customers and maximize profits

MPC + MPS equals

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The terms MPC and MPS are concepts from economics that describe how households make spending and saving decisions out of their income. Let's break these down for a better understanding:

• MPC (Marginal Propensity to Consume): This represents the portion of additional income that a household is likely to spend on consumption rather than saving. For example, if someone's income increases by $100 and they spend $80 of that increase, their MPC would be 0.8 (80/100).
• MPS (Marginal Propensity to Save): Conversely, this is the portion of additional income that a household is likely to save rather than spend. Continuing the previous example, if the household saves $20 out of the $100 increase in income, their MPS would be 0.2 (20/100).

The sum of MPC and MPS must equal 1 because the additional income can only be spent or saved, meaning there aren’t any other alternatives for allocating this extra income. Therefore, mathematically, we express it as:

MPC + MPS = 1

In a closed economy model, the whole of any extra income is divided into consumption and saving, thereby making 1 the correct answer. So, whenever income changes, whatever portion is not spent (MPC) is saved (MPS), summing it up to one.

Which of the following is NOT a major role of OPEC in production, and marketing of petroleum?

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Refining of petroleum products in member countries is NOT a major role of OPEC in the production and marketing of petroleum.

Let me explain why:

• Stabilizing oil prices by putting a production ceiling: OPEC primarily works by coordinating and unifying the petroleum policies of its member countries. By setting production levels, it aims to stabilize the oil market to avoid excessive fluctuations in oil prices.
• Raising the revenue of member countries from oil through price increase: OPEC seeks to ensure that member countries receive fair and stable incomes from their petroleum resources. This often involves strategies to influence global oil prices.
• Ensuring efficient and regular supply of oil to the market: OPEC works to provide a reliable supply of oil to the global market, preventing shortages and ensuring that the supply meets demand.
• Refining of petroleum products in member countries: This is not a primary function of OPEC. While refining can occur within member countries, OPEC's core activities focus on the regulation of crude oil production and market stability rather than refining processes.

In summary, the main roles of OPEC include balancing oil production and prices and ensuring a steady supply, but they do not majorly focus on the refining of petroleum products.

If the marginal utility of commodity is equal to its price, then

Maelezo ya Majibu

To understand the concept of marginal utility and price, let's delve into a simple explanation. Marginal utility refers to the additional satisfaction or utility that a consumer gains from consuming one more unit of a good or service. Meanwhile, the price of a commodity is what the consumer pays to acquire that good or service.

In economic terms, a consumer is said to be in equilibrium when they have allocated their resources in such a way that they get the most satisfaction or utility from their consumption. The consumer equilibrium condition is achieved when the marginal utility per unit of expenditure is the same for all commodities.

Therefore, when the marginal utility of a commodity is equal to its price, it means the consumer is maximizing their satisfaction with the resources available. The consumer has no incentive to change the consumption bundle because they are already getting the highest possible satisfaction. In other words, the consumer is getting just as much utility from the last unit of the good as it costs. Consequently, the consumer is in equilibrium.

Thus, the correct explanation is: The consumer is in equilibrium.

The trade-off between two commodities along the Production Possibility Curve (PPC) shows

Maelezo ya Majibu

The Production Possibility Curve (PPC) is a graphical representation that shows the different combinations of two goods or services that an economy can produce, given certain assumptions like fixed resources and technology.

The trade-off between two commodities along the PPC primarily illustrates the opportunity cost principle. This principle refers to the idea that in order to produce more of one good, an economy must produce less of another good. The curve demonstrates this trade-off by showing that resources are limited, and choosing to allocate more resources to produce one commodity means reallocating those resources away from another commodity.

For example, if an economy is at a certain point on its PPC and decides to produce more of Commodity A, it will inevitably end up producing less of Commodity B. This reduction in the production of Commodity B is the opportunity cost of producing more of Commodity A. Hence, every point along the PPC illustrates the trade-off and opportunity cost of choosing different production levels of the two goods.

Economics problems arise in all societies because

Maelezo ya Majibu

Economics problems arise in all societies primarily because resources are not in adequate supply. This is known as the fundamental economic problem of scarcity. In every society, there are limited resources but unlimited wants and needs. These resources include things like land, labor, and capital, which are necessary for producing goods and services. Since we do not have enough of these resources to satisfy everyone's desires, we face choices about how to allocate them efficiently.

The issue of scarcity leads to other economic problems such as deciding what to produce, how to produce it, and for whom it should be produced. These decisions are made by assessing opportunity costs and considering how to make the best possible use of the limited resources available.

While factors such as lack of proper planning or mismanagement by leaders can exacerbate economic problems, they are not the root cause. The core issue remains the limited availability of resources, compelling societies to prioritize and decide how best to meet the needs of their population.

f the population of a school is 600 and 60% are In JSS, how many students are in SSS?

Maelezo ya Majibu

To determine how many students are in SSS, we first need to figure out how many students are in JSS. According to the problem, 60% of the school's population is in JSS.

Here's a simple breakdown:

• The total population of the school is 600.
• 60% of 600 is calculated by multiplying 600 by 0.60. Mathematically, this is:
• 600 x 0.60 = 360. So, there are 360 students in JSS.

Since the whole school has 600 students, and 360 of those are in JSS, we can find out how many are in SSS by subtracting the JSS students from the total number of students:

600 - 360 = 240

Hence, there are 240 students in SSS.

The problem of "how to produce" in any economy is solved by

Maelezo ya Majibu

In any economy, the problem of "how to produce" is essentially about deciding the best way to combine resources to produce goods and services. This challenge can be effectively addressed by adopting the least cost method of production.

Here’s why:

• Objective: The key objective for any economy is to produce goods and services efficiently, using the least amount of resources possible, while maximizing output. This ensures that the resources, which are often limited, are utilized in the most productive way.


• Resource Allocation: By focusing on the least cost method, producers aim to determine the proportion of capital (like machines, tools, and buildings) and labor (human effort) that should be used to minimize costs and maximize profits. This can involve a mix of both capital and labor-intensive methods depending on which combination minimizes production costs.
• Flexibility: The least cost method is iterative and allows for adjustments based on changes in resource availability, technological advancements, and shifts in market conditions, ensuring the production process remains cost-effective and competitive.


• Consumer Benefits: When producers focus on minimizing costs, they can offer products at lower prices, making goods and services more affordable for consumers, which can increase demand and boost the overall economy.

In summary, while other methods and managerial skills are important, addressing how to produce in the most efficient and effective way often boils down to using the least cost method of production, thereby ensuring optimal resource use and economic stability.

The bank established to finances project aimed at promoting economic and social development within the African continent is

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The bank that is primarily dedicated to financing projects aimed at promoting economic and social development within the African continent is the African Development Bank (AfDB).

The African Development Bank (AfDB) was established in 1964 with the main objective to reduce poverty, improve living conditions, and promote economic and social development in African countries. It achieves these goals by providing loans and grants for a variety of development projects and programs across the continent. These projects cover various sectors including infrastructure, education, healthcare, agriculture, and energy.

Unlike purely commercial banks, the AfDB is focused on development projects that may not always have immediate financial returns but are crucial for the sustainable growth and development of African nations. The bank works together with member countries and international partners to mobilize resources and expertise needed to tackle the continent's challenges, often adopting innovative financing solutions tailored to the unique needs of the African context.

Which of the following is NOT a function of marketing boards in Nigeria?

Maelezo ya Majibu

In Nigeria, marketing boards were established to regulate and promote agricultural products. Their primary functions include activities like grading farm produce to ensure quality standards and marketing farm produce by finding markets where these products can be sold. They are also responsible for fixing prices for farm produce to stabilize farmers' incomes and protect them from market fluctuations.

However, one activity that marketing boards do not typically perform is the importation of farm produce. Marketing boards are mainly concerned with the domestic production and distribution of local agricultural products, whereas the importation would fall under international trade domains and different regulatory agencies. Thus, the importation of farm produce is not a usual function of marketing boards in Nigeria.

The formular used by the Expenditure approach to calculate National income is

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The expenditure approach is a common method used to calculate the national income, specifically the Gross Domestic Product (GDP) of a country. This approach sums up all expenditures or spending in the economy.

The correct formula for the expenditure approach is: Y = C + I + G + (X - M), where:

• C stands for Consumption: This is the total value of all goods and services consumed by households within the economy. It includes expenditures on items such as food, clothing, housing, and other personal expenses.
• I stands for Investment: This includes spending on capital goods that will be used to produce other goods and services in the future, such as machinery, buildings, and inventory.
• G stands for Government Spending: This is the total expenditure by the government on goods and services, including public sector salaries, defense, education, and infrastructure projects.
• (X - M) stands for Net Exports: This is calculated as total exports (X) minus total imports (M). Exports are goods and services sold to other countries, while imports are those bought from other countries. By subtracting imports from exports, we determine the net trade effect on the economy.

Putting it all together, this formula helps to calculate the total economic activity within a country by summing up consumption, investment, government spending, and net exports, giving a comprehensive picture of the national income.

Which of the following NOT among the objectives of OPEC?

Maelezo ya Majibu

When analyzing the objectives of OPEC (Organization of the Petroleum Exporting Countries), it is important to look at the core goals that this organization typically aligns with:

1. To stabilize the price of oil in the world market: This is indeed one of the primary objectives of OPEC. By coordinating the oil production levels among its members, OPEC strives to maintain oil price stability in the global market.

2. To stabilize the revenue from oil to producing countries: Another key objective of OPEC includes ensuring consistent and fair revenue for its oil-producing member countries. By influencing oil prices and production levels, OPEC helps in maintaining stable revenues for these nations.

3. To make sure that oil flows to all the consuming countries: Ensuring the continuous supply of oil to consuming countries is a goal aligned with OPEC's efforts to balance supply and demand for economic and energy stability worldwide.

4. To establish petroleum refineries in all member states: This is NOT among the objectives of OPEC. OPEC does not focus specifically on establishing petroleum refineries in all its member states. The organization's primary focus is on coordinating and unifying the petroleum policies among its member countries, not on the physical establishment of refineries.

The use of tax and expenditure policy to regulate the economy is known as

Maelezo ya Majibu

The use of tax and expenditure policy to regulate the economy is known as fiscal policy.

Fiscal policy refers to the government's use of its spending levels and tax rates to influence a nation's economy. It is primarily the responsibility of the government to adjust its spending and tax rates to either promote economic growth or control inflation. By doing so, the government aims to achieve macroeconomic objectives such as controlling inflation, reducing unemployment, and achieving economic growth.

There are two main types of fiscal policy:

• Expansionary Fiscal Policy: This involves increasing government spending and/or decreasing taxes to stimulate economic growth. It is often used in times of recession or economic downturns to increase demand and reduce unemployment.
• Contractionary Fiscal Policy: This involves decreasing government spending and/or increasing taxes to cool down an overheated economy. It is employed to control inflation when the economy is growing too quickly.

In summary, fiscal policy is crucial because it directly impacts the economy by influencing the level of aggregate demand through changes in government spending and taxation.

Which of these is NOT associated with the problem of internal trade?

Maelezo ya Majibu

Market trade unions are not typically associated with the problem of internal trade. Trade unions are typically formed b workers or employees to protect their rights, negotiate better working conditions, and advocate for their interests. While trade unions can have an impact on labor markets and industrial relations, they are not directly linked to the challenges or problems specifically related to internal trade.

Which of the following is NOT associated with minimum price legislation?

Maelezo ya Majibu

Minimum price legislation is a policy where the government sets a lower price limit for certain goods or services, meaning they cannot be sold below this set price. It is often intended to protect producers, ensuring they receive fair compensation and maintaining industry standards.

When a minimum price is set above the equilibrium price, it typically leads to several economic effects:

• Wastages of resources: This can occur because at the artificially high price, producers might overproduce as they want to profit from the higher price, leading to excess production that isn't effectively utilized or sold.
• Excess supply: This means that the quantity supplied exceeds the quantity demanded because the price is higher than what consumers are willing to pay. Thus, the market experiences surplus products.
• Unemployment: In some cases, particularly in labor markets, setting a minimum price (like minimum wage) can result in employers reducing hiring or cutting jobs because of higher wage costs, leading to unemployment.

Excess demand is NOT associated with minimum price legislation. Excess demand occurs when the price is set too low, leading to a situation where the quantity demanded exceeds the quantity supplied. This situation is commonly related to maximum price controls, not minimum price legislation.

Which of the following is NOT included in-measuring the National income through the income approach?

Maelezo ya Majibu

When measuring national income using the **Income Approach**, the focus is on summing up all the **incomes earned** by individuals and businesses in an economy for providing goods and services. This typically includes wages, profits, rents, and interest received. Let's examine each option:

• **Profit earned by NITEL plc**: This is included because it is part of the profits earned by businesses.
• **Profit earned by Nigerian Bottling Company plc**: This is included for the same reason as above; it is business profit, which is a component of national income.
• **Income earned by a bricklayer**: This is included because it's a wage or salary, which is a fundamental part of national income.
• **Allowance given to an aged mother by a civil servant**: This is **NOT included** in measuring national income through the income approach. The reason is that these are private transfer payments or personal transfers, not payments made for labor, production of goods, or capital services.

Holding money to take care of contingencies is

Maelezo ya Majibu

Holding money to take care of contingencies is known as the precautionary motive.

Let me explain this further in a simple way:

• Imagine you keep aside some money for unexpected events, such as medical emergencies, car repairs, or other sudden expenses that might occur. This act of saving money for unforeseen needs is called the precautionary motive.
• The main purpose here is to have money on hand to tackle emergencies or any sudden need without having to struggle or sell other assets quickly.
• This behavior is different from having money for regular expenses, which is known as the transactions motive, where the money is kept for day-to-day spending like groceries and bills.
• It is also different from speculative motive, where money is held to take advantage of future investment opportunities.
• Lastly, expansionary motive typically relates to policy measures encouraging broader economic growth and isn't directly about individual money-holding behavior for emergencies.

At the equilibrium price,

Maelezo ya Majibu

The equilibrium price in economics is a fundamental concept where the market operates most efficiently. To understand it fully, consider the following explanation:

When demand equates supply, it indicates the price at which the quantity of goods consumers are willing to buy (demand) is exactly equal to the quantity of goods producers are willing to sell (supply). This is the point where the market reaches equilibrium. At this price, there is no excess supply or demand, meaning that resources are being used most effectively, and there is no pressure on the price to change.

In contrast:

• If the price equals demand only, this would imply a scenario that doesn't exist in standard economic terms because equilibrium involves both supply and demand.
• When demand is less than supply, it suggests a surplus in the market, leading to downward pressure on price as sellers attempt to clear excess stock.
• If demand is greater than supply, it leads to a shortage, resulting in upward pressure on prices as consumers compete to buy the limited available goods.

Thus, at equilibrium price, demand equates supply, ensuring the market operates smoothly without surplus or shortage.

Which of the following will NOT bring about an increase in Labour force?

Maelezo ya Majibu

To determine which option will NOT bring about an increase in the labor force, let's examine the impact of each one:

1. **Decrease in death rate:** When the death rate decreases, more people are living longer, which means that they remain available to be a part of the workforce. Thus, this can contribute to an increase in the labor force.

2. **Better medical services:** Improved medical services often lead to healthier individuals who can participate in work for longer durations. Good health can increase the number of individuals who can work and potentially extend their working life, thus leading to an increase in the labor force.

3. **Immigration:** Immigration allows people from other countries to enter and work in a new country. This directly increases the number of people who are available to work in that country, thereby increasing the labor force.

4. **Emigration:** Emigration is when people leave a country to work or live elsewhere. When individuals emigrate, they reduce the number of people available to work in the original country. Thus, **emigration** will NOT bring about an increase in the labor force; instead, it can contribute to a decrease.

In summary, the option that will NOT bring about an increase in the labor force is **Emigration**.

A price floor is usually fixed

Maelezo ya Majibu

A price floor is a **minimum price** set by the government for a particular good or service. It is designed to ensure that the price is not too low, often supporting producers by maintaining their income at a viable level.

For a price floor to be effective, it is usually fixed **above the equilibrium price.** Here's why:

• **Equilibrium Price** is where the supply of a product equals the demand for that product. It is the point at which the market is said to be in balance.
• When a price floor is set **above the equilibrium**, it means that the price consumers are willing to pay is less than the price producers are willing to accept. This leads to a decrease in quantity demanded by consumers since the price is too high for them.
• Thus, producers end up with **more goods available than what consumers are buying**, creating a **surplus**. This surplus occurs because the set price is prohibiting the market from reaching its natural balance or equilibrium.

Therefore, a price floor is usually fixed **above the equilibrium and causes surpluses.** This allows it to serve its purpose of protecting producer revenues while potentially benefiting certain industry stakeholders.

Economic problem arises as a result of

Maelezo ya Majibu

The **economic problem** arises due to the fundamental concept of **scarcity**. In simple terms, scarcity means that the resources available to us are **limited**, while our desires and needs are **unlimited**. This situation forces us to make decisions about how best to allocate our resources efficiently.

Because of scarcity, every choice we make involves a **trade-off**. For instance, if you choose to spend your time studying economics instead of mathematics, you sacrifice the benefits you would have gained from studying mathematics. The concept associated with this scenario is called **opportunity cost**, which is essentially the value of the next best alternative forgone when making a decision.

Furthermore, scarcity leads to the necessity of **choice**. Individuals, businesses, and governments must decide what to produce, how to produce, and for whom to produce. These choices are influenced by the limited resources and the alternatives available.

While **money cost** is often considered in decisions, it is not the root cause of the economic problem. It is a **monetary representation of value** and is used as a tool to navigate scarcity and opportunity cost.

In essence, the **economic problem exists** because we have to make choices about how to use our scarce resources most effectively, and every choice involves an opportunity cost. This continual need to prioritize options is at the very heart of economics.

From the diagram below, moving from point A to B and from B to c is due to

Maelezo ya Majibu

Opportunity cost is a key concept in economics that refers to the value of the next best alternative forgone when making a choice. It plays a significant role in determining the downward shift in the production possibilities curve (PPC).
The PPC represents the different combinations of two goods or services that an economy can produce given its limited resources and technology. It illustrates the trade-offs that occur when resources are allocated between the production o different goods.
When there is a downward shift or inward shift in the PPC, it indicates a decrease in the economy's productive capacity. This shift can be influenced by several factors, including changes in resource availability, technology, or the efficiency of resource allocation. However, opportunity cost can help explain how these factors lead to a downward shift.

A downward sloping demand curve means that

Maelezo ya Majibu

When the price of a product decreases, consumers are generally willing to buy more of it. As a result, the quantity demanded increases. However, since each unit is sold at a lower price, the decline in price outweighs the increase in quantity, leading to a decrease in total revenue (total revenue = price x quantity). This is why a downward sloping demand curve indicates that the total revenue declines as the price is lowered.

Which of the following is NOT a feature of capitalism?

Maelezo ya Majibu

In a capitalist economic system, several features define its characteristics. To understand which of the given options is NOT a feature of capitalism, let's examine each one:

Free Enterprise: This is a fundamental aspect of capitalism. It refers to the freedom of businesses to operate competitively for profit with minimal government intervention. Under free enterprise, individuals and businesses have the right to sell goods and services, decide on investments, and set prices.

Private Ownership of Property: Another core feature of capitalism is the ownership of property by individuals or corporations rather than by the government. In this system, individuals have the right to own assets, resources, and production facilities. They can use, rent, or sell property as they see fit.

Competition: Competition is a driving force in capitalism. It encourages businesses to improve their products and services, enhance efficiency, lower prices, and innovate. Healthy competition is believed to lead to better choices and quality for consumers.

Detailed Economic Planning: This is NOT a feature of capitalism. Detailed economic planning is more characteristic of socialist or centrally planned economies where government agencies set production targets, control resources, and address distribution centrally. Capitalism relies more on market forces and price mechanisms to guide economic decisions rather than detailed and centralized planning.

Therefore, detailed economic planning is the correct answer as it is NOT a feature of capitalism.

In income determination theory, acceleration principles shows that

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In income determination theory, the acceleration principle suggests that investment is the primary driver or cause, whil income is the resulting effect. The acceleration principle states that changes in investment levels lead to amplified or accelerated changes in income.
The acceleration principle posits that changes in investment levels have a multiplier effect on income. When investment increases, it leads to increased production, employment, and income generation.

A firm's average cost decreases in the long-run because of

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In the long run, a firm's average cost decreases primarily because of increasing returns to scale. This occurs when a firm's output increases by a proportion greater than the increase in inputs. In simpler terms, when a company gets bigger, it becomes more efficient at production. Consider the following reasons:

• **Economies of Scale**: As production scales up, certain costs such as fixed costs are spread over a larger number of goods, thus reducing the cost per unit.
• **Specialization and Division of Labor**: Larger firms often permit more specialization among workers and use more advanced technology, leading to increased productivity.
• **Bulk Purchasing**: Bigger firms can buy raw materials in large quantities at a discounted rate, which reduces the cost of production per unit.

Other options, like **diminishing average returns** or **decreasing marginal returns**, generally pertain to situations in the short run or under different conditions and would not directly explain a decrease in average costs in the long run. Additionally, while **decreasing average fixed cost** could reduce cost in the short run, in the long run, all costs are variable and focus instead shifts to how efficiently inputs are converted to outputs.

An industry engaged in the extraction of raw materials and its conversion into semi-finished goods is called industry.

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Processing involves transforming raw materials or inputs into more refined or semi-finished products. This can include various stages of production, such as refining, manufacturing, assembly, or other forms of processing.
The processing industry plays a vital role in taking raw materials from their natural state and converting them into products that can be used for further processing or consumed by end-users. This industry typically adds value to the rav materials by applying different processes, technologies, and expertise.
NOTE: Although manufacturing is involved in the production of goods, it does not specifically address the extraction of raw materials. Manufacturing encompasses a broader range of industries involved in producing finished goods from raw materials, components, or parts.

In the long-run, a firm must shut down if its average revenue is

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In the long-run, a firm must shut down if its average revenue is less than its average variable cost. This is because the firm is unable to cover even its variable costs, which are the costs it incurs when it produces any output at all. Let me explain further:

• A firm's goal is to maximize profit. To do this, a firm must ensure that it can at least cover its variable costs in the short-term. Variable costs include things like labor and raw materials, which are necessary for production.
• If the firm cannot cover the variable costs, it indicates that producing a unit of output adds more cost than revenue. Therefore, producing any more output will increase losses, making it better for the firm to shut down operations.
• In the long-run, all costs become variable, and if the firm's revenue doesn't cover these costs, the firm will not be able to survive.

To put it simply, if average revenue is less than average variable cost, the firm can't sustain itself in the long-run, and shutting down is a rational decision.

What add funds to the circular flow?

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The concept of the circular flow of income represents how money moves within an economy among consumers, businesses, and various markets. In this circular flow, three key elements can either add to or reduce the flow of funds: **leakages** and **injections**.

Leakages are the flows of money that exit the circular flow. They reduce the amount of money that circulates within the economy. Common leakages include savings, taxes, and imports. For instance, when individuals save money instead of spending it, that money is not used to purchase goods or services, thus exiting the circular flow.

Injections, on the other hand, are the activities or financial inflows that add funds to the circular flow of income, ensuring continued economic activity. They increase the total amount of money circulating in the economy. These include investment, government spending, and exports.

• Investment: When businesses invest in capital goods, they increase the production capability, leading to more employment and income.
• Government Spending: When the government spends on infrastructure, social services, or other public projects, it injects money directly into the economy.
• Exports: When a country sells goods and services to other countries, new money flows into the country's economy from foreign buyers.

The expenditure approach is a method for calculating a nation's Gross Domestic Product (GDP) by considering the total expenditure on the nation's final output of goods and services in a year. While this approach helps to measure the size of the economy, it is not directly responsible for adding funds to the circular flow. Instead, it relies on the activities of consumption, investment, government spending, and net exports.

In conclusion, it is the concept of injection that directly adds funds to the circular flow, stimulating economic activities and growth by multiplying the effects of initial spending through the economy.

If government in a fiscal year has its revenue receipts less than the expenditure, such country is having

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When a government has its revenue receipts less than the expenditure in a fiscal year, the country is experiencing a deficit budget. Here's a simple explanation:

Revenue receipts are the funds government receives, mainly from taxes and other sources like fees, interests, etc.

Expenditure refers to the total amount of money the government spends on various needs like infrastructure, education, defense, welfare programs, and salaries.

If the money received (revenue receipts) is less than the money spent (expenditure), it indicates that the government is spending more than it is earning. This excess expenditure generates a gap which is known as a deficit.

To address this deficit, governments might need to borrow money or reduce spending to balance their finances in the future. Hence, when expenditure surpasses revenue, it results in a deficit budget.