WAEC SSCE - Economics - 2022
Swali 1 Ripoti
An example of commodity money is
Maelezo ya Majibu
An example of commodity money is silver. Commodity money is a type of money that has intrinsic value because it is made of a valuable commodity, such as silver or gold. In the past, people used to directly trade goods with each other, but it was not always convenient or practical to carry around large amounts of goods. So, they started using valuable commodities like silver as a medium of exchange. Silver has its own value because it can be used for various purposes, such as making jewelry or conducting electricity. People recognized this value and agreed to accept silver as a form of payment. They could trade their goods or services for silver, and then use that silver to acquire other goods or services from someone else. Unlike other forms of money mentioned, such as currency notes, mobile money, or cheques, silver has inherent value in itself. It is a tangible object that holds worth regardless of any government or financial system. Its value is based on the scarcity and demand for silver in various industries. So, when we talk about commodity money, we mean using a physical item like silver as a medium of exchange because of its inherent value. It was an early form of money that helped facilitate trade and exchange between people in a simple and understandable way.
Swali 2 Ripoti
If the quantity demanded of a commodity increases from 20 units to 30 units when there is an increase in price from $4.00 to $5.00, the elasticity of demand is
Maelezo ya Majibu
e = ∆Qd/∆P x P/Qd
= 30 - 20/ 5 - 4 x 4/ 20
= 10/1 x 4/20
= 2
Swali 3 Ripoti
Which of the following factors is not a cause of diminishing returns?
Maelezo ya Majibu
Lae of diminishing returns also known as known as law of variable proportion. It is applied to the short run analysis of production . However, the causes of diminishing returns are: fixed costs, limited demand, No change in technology,scarce factors etc.
Swali 4 Ripoti
A benefit that is present in all forms of economic integration is that
Maelezo ya Majibu
Economic integration forms international co-operation among nations to foster their economic interests. Countries with common interests form themselves into an organisation whose major objectives are to remove trade barriers and other obstacles that reduce the free flow of goods and service between them.
Swali 5 Ripoti
The main function of the African Development Bank (AFDB) is to
Maelezo ya Majibu
African Development Bank is a bank owned by African countries which belonged to the African Union. The objective are:
- Provision of loans to aid social and economic development of member nations.
- Provision of technical assistance for development projects and programms embarked upon by member nations.
- It fosters economic integration among member nations.
Swali 6 Ripoti
A minimum price legislation is also called
Maelezo ya Majibu
Minimum price is often called price floor and it is fixed by the government to protect the producer or seller. Minimum price is set above the equilibrium price and when this occur, there will be excess supply over demand i.e surplus.
Swali 7 Ripoti
The mining sector of an economy contributes 60% to the Gross Domestic Product(GDP). If the GDP is $540, what is the contribution of the mining sector?
Maelezo ya Majibu
To find the contribution of the mining sector, we need to multiply the GDP by the percentage contribution of the mining sector. Contribution of mining sector = GDP x Percentage contribution of mining sector/100 Contribution of mining sector = $540 x 60/100 Contribution of mining sector = $324 Therefore, the contribution of the mining sector to the GDP is $324.
Swali 8 Ripoti
A major characteristic of natural resources is that they
Maelezo ya Majibu
Natural resources exist naturally unlike man made resources that are created by human beings. The existence of natural resources is not attributed to any human activities, they are acts of nature.
Swali 9 Ripoti
A major disadvantage of a capitalist economy is that it
Maelezo ya Majibu
A major disadvantage of a capitalist economy is that it worsens income inequality among the citizens. In a capitalist economy, the means of production and distribution are owned and controlled by private individuals or corporations, who seek to maximize their profits. This often results in unequal distribution of wealth, as the rich get richer and the poor get poorer. This happens because those who own the means of production are able to accumulate more wealth and power than those who do not. As a result, income inequality can be exacerbated in a capitalist economy, where those at the top of the economic ladder have access to more resources, education, and opportunities than those at the bottom. This can lead to social unrest and political instability, as those at the bottom of the ladder become frustrated with their economic situation and lack of opportunities. Therefore, the major disadvantage of a capitalist economy is that it worsens income inequality among the citizens.
Swali 10 Ripoti
Foreign investment and long term securities in the balance of payment accounts are recorded as
Maelezo ya Majibu
Foreign investment and long term securities in the balance of payment accounts are recorded as capital account transactions. Capital account transactions in the balance of payments refer to the purchase and sale of long-term assets, such as real estate and stocks, between a country and foreign entities. It also includes foreign direct investment, portfolio investment, and other investments that involve a long-term relationship between the investor and the recipient. These transactions are recorded in the capital account of a country's balance of payments, which measures the flows of financial assets and liabilities between a country and the rest of the world.
Swali 11 Ripoti
If the government imposes a minimum price on a commodity
Maelezo ya Majibu
If the government imposes a minimum price on a commodity, excess supply or a market surplus occurs. This is because the minimum price is higher than the equilibrium price, which is the price at which the quantity of the commodity demanded is equal to the quantity supplied. At the minimum price, the quantity supplied by producers will exceed the quantity demanded by consumers, creating a surplus or excess supply. This means that some of the producers will be left with unsold goods. To clear the market, the government may have to purchase the surplus goods from the producers, which will result in a cost to the government. Alternatively, the producers may reduce their supply, leading to a reduction in output and employment in the industry. The imposition of a minimum price can lead to a misallocation of resources as the producers may not be able to sell all their output at the minimum price, which could result in inefficiencies in the economy.
Swali 12 Ripoti
If inflation is anticipated, people may
Maelezo ya Majibu
If inflation is anticipated, people may tend to spend more money. This is because they believe that prices will rise in the future, and they want to buy goods and services now while they are still relatively cheaper. As a result, there is an increase in demand for goods and services, which can drive up prices further and exacerbate inflation. However, it's worth noting that different people may react differently to anticipated inflation, and some may choose to save more money or spend less money as a precautionary measure.
Swali 13 Ripoti
The main objective of marketing boards is to
Maelezo ya Majibu
The prime motive in the establishment of most marketing boards is to stabilize producer prices, particulary in the case of products designed primarily for those export markets in which price fluctuations are most violent.
Swali 14 Ripoti
Maelezo ya Majibu
The transportation industry is the highest demand for petrol while the chemical industry a close second.
Swali 15 Ripoti
The demand curve for goods of ostentation is usually
Maelezo ya Majibu
The demand curve for goods of ostentation is usually positively sloped. This is because goods of ostentation are luxury goods, which are generally not necessities and have higher income elasticities of demand. As income increases, consumers are willing to spend more on these goods, leading to an increase in demand. Therefore, the demand curve for goods of ostentation slopes upwards from left to right.
Swali 16 Ripoti
The use of the bank rate, cash ratio and open market operations constitute
Maelezo ya Majibu
The use of the bank rate, cash ratio, and open market operations is associated with monetary policy. Monetary policy refers to the actions taken by a central bank, such as the Federal Reserve in the United States, to manage the money supply and influence the overall economy. The main goal of monetary policy is to achieve price stability, promote economic growth, and control inflation. 1. Bank Rate: The bank rate is the interest rate at which the central bank lends money to commercial banks. By increasing or decreasing the bank rate, the central bank can influence the cost of borrowing for commercial banks. When the central bank raises the bank rate, borrowing becomes more expensive, which can reduce spending and control inflation. Conversely, when the central bank lowers the bank rate, borrowing becomes cheaper, encouraging spending and stimulating economic activity. 2. Cash Ratio: The cash ratio, also known as the reserve requirement or reserve ratio, is the percentage of deposits that commercial banks are required to hold as reserves. By adjusting the cash ratio, the central bank can control the amount of money that banks can lend out. Increasing the cash ratio means banks must hold more reserves, limiting the amount of money available for lending. This helps control inflation and prevents excessive lending. Conversely, lowering the cash ratio increases the money available for lending, stimulating economic activity. 3. Open Market Operations: Open market operations refer to the buying and selling of government securities, such as bonds, by the central bank in the open market. When the central bank wants to increase the money supply, it buys government securities from commercial banks, injecting money into the economy. This stimulates lending and spending. On the other hand, when the central bank wants to decrease the money supply, it sells government securities, absorbing money from the economy and reducing lending and spending. Together, these tools (bank rate, cash ratio, and open market operations) are used by the central bank to manage the money supply, regulate interest rates, and influence economic activity. By adjusting these factors, the central bank can implement monetary policy to stabilize prices, promote economic growth, and control inflation.
Swali 17 Ripoti
Maelezo ya Majibu
A major function of the retailer is to break bulk and sell products in small units. Let me explain why in a simple and understandable way. Retailers play a crucial role in the distribution process between manufacturers or wholesalers and consumers. They are the businesses that sell products directly to the end-users or individual customers. One of the main functions of retailers is to break bulk and sell products in small units. Breaking bulk refers to the process of purchasing goods in large quantities from wholesalers or manufacturers and then dividing them into smaller, more manageable units for individual customers. This allows retailers to match the demand of consumers who typically purchase products in smaller quantities. By breaking bulk, retailers make products accessible to customers in convenient and smaller quantities that suit their needs. For example, imagine a customer who wants to buy a single bottle of shampoo. It would be impractical for them to purchase an entire case or carton of shampoo directly from the manufacturer. Retailers, however, buy products in bulk from wholesalers and then repackage them into smaller units that customers can purchase. This function of breaking bulk is essential because it enables retailers to cater to the diverse preferences and purchasing power of individual consumers. It also contributes to reducing the cost of distribution. When products are distributed in smaller units, it becomes easier and more cost-effective to transport and handle them throughout the supply chain. This efficiency helps to streamline the distribution process and minimize transportation costs, ultimately resulting in lower prices for consumers. While retailers may also engage in other functions such as generating demand through advertising or providing credit options, the primary function of breaking bulk and selling products in small units is at the core of their role. It allows retailers to bridge the gap between manufacturers and individual consumers by making products more accessible, affordable, and convenient for purchase.
Swali 18 Ripoti
The sufficient condition for a firm to be in equilibrium is that the
Maelezo ya Majibu
The sufficient condition for a firm to be in equilibrium is that the marginal cost curve cuts the marginal revenue curve from below. Let me explain why in a simple and understandable way. In economics, equilibrium refers to a state where there is no tendency for change or adjustment. For a firm to be in equilibrium, it means that it has achieved a balance between its costs and revenues, and there is no incentive or need for it to make any changes in its production or pricing decisions. To understand this condition, let's consider the relationship between marginal cost (MC) and marginal revenue (MR). Marginal cost represents the additional cost incurred by the firm to produce one additional unit of output, while marginal revenue represents the additional revenue earned from selling one additional unit of output. When a firm is in equilibrium, it means that it has found the optimal level of production where its costs and revenues are balanced. At this point, the firm has no incentive to produce more or less because any deviation would result in lower profits. The condition for equilibrium is that the marginal cost curve cuts the marginal revenue curve from below. In other words, the marginal cost of producing one additional unit is less than or equal to the marginal revenue earned from selling that unit. If the marginal cost is higher than the marginal revenue, it would mean that the firm is incurring higher costs to produce an additional unit than the revenue generated from selling that unit. In this case, the firm would be better off reducing its production level to avoid losses and move towards equilibrium. Conversely, if the marginal cost is lower than the marginal revenue, it implies that the firm is generating more revenue from selling an additional unit than the cost of producing it. In this situation, the firm would benefit from increasing its production level to maximize profits and move towards equilibrium. By having the marginal cost curve cut the marginal revenue curve from below, the firm ensures that it is operating at the optimal level of production where its costs and revenues are balanced. This condition indicates that the firm has reached a state of equilibrium and has no incentive to make any adjustments in its production or pricing decisions. It is important to note that while profitability is a desirable outcome for a firm, it is not the sole criterion for determining equilibrium. A firm can be profitable but still not in equilibrium if its marginal cost is not in line with the marginal revenue. In summary, the sufficient condition for a firm to be in equilibrium is that the marginal cost curve cuts the marginal revenue curve from below. This condition ensures a balance between costs and revenues and signifies that the firm has reached an optimal level of production without any incentive for further adjustments.
Swali 19 Ripoti
In manufacturing, division of labour may be hindered by
Maelezo ya Majibu
In manufacturing, division of labor refers to the practice of breaking down the production process into different tasks or jobs, each performed by a specialized worker or group of workers. This division allows for increased efficiency and productivity. However, there are certain factors that can hinder the effective implementation of division of labor: 1. Excessive demand for the product: When there is a high demand for a particular product, manufacturers may face challenges in dividing the labor effectively. The increased demand can put pressure on the production process, leading to bottlenecks and delays. If the workload exceeds the capacity of the available workforce, it becomes difficult to assign specialized tasks efficiently, potentially causing inefficiencies and slower production. 2. Low level of technology: Division of labor relies on technology and machinery to support the different tasks and streamline the production process. If the manufacturing facility lacks advanced technology or machinery, it can limit the ability to divide labor effectively. Without appropriate tools and equipment, workers may not be able to perform their specialized tasks efficiently, leading to slower production and reduced overall efficiency. 3. Excess supply of labor: While a sufficient workforce is necessary for division of labor, having an excessive supply of labor can also hinder its effectiveness. When there are more workers than needed for a specific production process, it can lead to overcrowding and duplication of tasks. This redundancy can result in confusion, inefficiency, and decreased productivity as workers may end up overlapping or interfering with each other's work. 4. Increase in the export of goods: If there is a significant increase in the export of goods, it can impact the division of labor within the manufacturing process. When manufacturers need to meet higher demands from international markets, they may need to allocate more resources and labor to specific products or tasks. This reallocation of resources can disrupt the existing division of labor and require adjustments to accommodate the changing production requirements. In summary, excessive demand for the product, low level of technology, excess supply of labor, and an increase in the export of goods can all hinder the effective implementation of division of labor in manufacturing. These factors can disrupt the balance and efficiency of specialized tasks, potentially leading to slower production, inefficiencies, and challenges in meeting market demands.
Swali 20 Ripoti
The type of unemployment found among workers who leave their jobs in search of other jobs is termed
Maelezo ya Majibu
Frictional unemployment refers to the type of unemployment that occurs when workers leave their current jobs in search of other jobs that better suit their skills and interests. It is often described as "search unemployment" because it results from the time and effort it takes for workers to find new employment opportunities. Frictional unemployment is usually short-term and can be a natural part of a healthy job market as workers move between jobs.
Swali 21 Ripoti
Gross National Product (GNP) less the provision for the wear and tear of assets is the
Maelezo ya Majibu
The Gross National Product (GNP) less the provision for the wear and tear of assets is the Net National Product (NNP). The NNP represents the total value of all goods and services produced by a country's citizens, including their production within the country and abroad, minus the depreciation or wear and tear of assets used in production. In other words, NNP measures the net value of a country's economic output, taking into account the reduction in value of capital assets over time due to use or obsolescence. It is a more accurate measure of a country's economic well-being than GNP, which does not account for the depreciation of assets. For example, if a country's GNP is $1 trillion and the wear and tear of its assets is $200 billion, then the NNP would be $800 billion ($1 trillion - $200 billion).
Swali 22 Ripoti
In perfectly elastic supply, the supply curve
Maelezo ya Majibu
In perfectly elastic supply, the supply curve is horizontal. Let me explain why in a simple and understandable way. The supply curve represents the relationship between the quantity of a product that producers are willing to supply and the price of that product. It shows how the quantity supplied changes in response to changes in price. In the case of perfectly elastic supply, it means that the quantity supplied can adjust instantly and infinitely in response to any change in price. Producers are able to supply as much of the product as demanded at a specific price, without any constraints or limitations. When the supply curve is horizontal, it indicates that the quantity supplied remains the same regardless of changes in price. In other words, producers are willing to supply an unlimited quantity of the product at a given price. This suggests a perfectly elastic response to price changes. For example, let's consider a market for a specific type of smartphone charging cable. If the supply of these cables is perfectly elastic, it means that regardless of the price, producers can supply any quantity of charging cables to meet the demand. Whether the price is high or low, the quantity supplied remains constant. This is represented by a horizontal supply curve. In contrast, a vertical supply curve would indicate perfectly inelastic supply. This means that the quantity supplied remains constant regardless of changes in price. In this case, producers are unable or unwilling to adjust the quantity supplied in response to price changes. Therefore, in perfectly elastic supply, the supply curve is horizontal, reflecting the unlimited quantity that producers are willing and able to supply at any given price.
Swali 23 Ripoti
Which of the following industries will add more value to primary products?
Maelezo ya Majibu
Primary products are goods that are available from cultivating raw materials without a manufacturing process. Significant primary product industries include agriculture, fishing, mining and forestry. Examples of primary products are: oil, water, fish, fruit, crops, wood etc.
Swali 24 Ripoti
Commercial banks are different from development banks in that the latter
Maelezo ya Majibu
Commercial bank is the bank organized to perform public utility banking services such as accepting deposits, lending of money etc. On the other hand, development bank refers to a multi-purpose financial undertaking set up to provide financial aid to the industrial and agricultural sector, to encourage development.
The difference is that raise funds from accepting deposit from the public while development banks borrow, grants and sells securities.
Swali 25 Ripoti
A consumer of a single commodity is in equilibrium when
Maelezo ya Majibu
A consumer of a single commodity is in equilibrium when he/she can equate his/her marginal utility with the price of the commodity. This means that the consumer has maximized the satisfaction derived from consuming the last unit of the commodity with the cost incurred in acquiring it. At this point, the consumer will not be willing to buy more of the commodity at the prevailing price because the additional satisfaction derived from it would be less than the cost of acquiring it. On the other hand, if the price of the commodity decreases, the consumer will increase his/her demand for it until the marginal utility of the last unit purchased is equal to the new price. Conversely, if the price increases, the consumer will decrease his/her demand for it until the marginal utility of the last unit purchased is equal to the new price.
Swali 26 Ripoti
Given that a country's index of export price is 180 and that of import is 200, the terms of trade is
Maelezo ya Majibu
Terms of trade = Index of export/ Index of import x 100
= 180/200 x 100
= 90
Swali 27 Ripoti
Which of the following measures can lead to an increase in exports?
Maelezo ya Majibu
Out of the given options, the measure that can lead to an increase in exports is the depreciation of currency. When a country's currency depreciates, its exports become relatively cheaper for foreign buyers. This makes the country's exports more competitive and attractive in the global market, which can increase demand and ultimately increase the country's export revenue. On the other hand, an increase in export duties may discourage exports because it makes exported goods more expensive for foreign buyers. Similarly, an increase in excise duties is a tax on domestically produced goods, which would make them more expensive and less competitive in the global market. A total ban on imports may protect domestic industries from foreign competition, but it can also limit the availability of raw materials and other inputs needed for production. This can increase production costs and reduce the competitiveness of the country's exports.
Swali 28 Ripoti
A firm that closes down will still incur
Maelezo ya Majibu
A firm that shut down will earn zero revenue and its variable cost of producion is also zero, so the firm's total cost of production is equal to its fixed cost. However, the firm will still incur fixed cost.
Swali 29 Ripoti
The use of mass advertising media enable a firm to enjoy
Maelezo ya Majibu
The use of mass advertising media enables a firm to enjoy marketing economies. Marketing economies are achieved when a firm can reduce the per-unit cost of production and distribution by increasing the scale of its marketing activities. Mass advertising media, such as television, radio, newspapers, and social media, provide a cost-effective way for firms to reach a large audience and promote their products or services. By using mass advertising media, a firm can reduce its per-unit advertising costs, as the cost of creating and distributing an advertisement is spread over a larger audience. This allows firms to reach a wider market at a lower cost per customer and increase sales volume, which can lead to greater profits and market share. Moreover, mass advertising media can help build brand awareness and reputation, which can increase customer loyalty and demand for a firm's products or services. This, in turn, can result in lower marketing costs over time as a result of greater customer retention and word-of-mouth advertising. Therefore, the correct answer is "marketing economies."
Swali 30 Ripoti
Cooperative societies are formed mainly to
Maelezo ya Majibu
Cooperative societies are formed mainly to promote and maintain the welfare of their members. Cooperative societies are voluntary organizations owned and controlled by their members, who share a common goal or interest. The primary purpose of cooperatives is to provide members with goods, services, or benefits that they might not be able to obtain individually. Cooperatives achieve this goal by pooling resources, sharing risks and benefits, and working together towards common objectives. This includes encouraging thrift and credit among members, providing access to affordable goods and services, and promoting economic and social development. While cooperative societies may compete with private companies in some industries, their primary focus is not to break the monopolies of private companies. Instead, cooperatives seek to provide a viable alternative to traditional business models that prioritize profit over social and environmental responsibility.
Swali 31 Ripoti
Political instability hinders economic growth because it
Maelezo ya Majibu
Most developing countries are not politically stable e.g frequent changes in government, commnual crises, etc. These generally lead to low economic growth and development. Theferore, political instability, through its adverse influence on investment, accounts for substantial reduction in the economic growth.
Swali 32 Ripoti
Fiscal policy measures imply a change in
Maelezo ya Majibu
Fiscal policy measures refer to the use of government revenue and expenditure to regulate the economy. In other words, fiscal policy involves the use of government spending and taxation to influence the level of aggregate demand in the economy. This can include changes in government spending on public goods and services, transfer payments, subsidies, and taxation. By changing these variables, the government can attempt to stimulate economic growth, reduce inflation, and stabilize the economy. Therefore, the correct answer is "government revenue and expenditure to regulate an economy".
Swali 33 Ripoti
An increase in the price of commodity X led to a fall in the supply of commodity Y. Commodities X and Y are
Maelezo ya Majibu
Competitive goods means goods and/or services that meet the same buyer or customer needs as one or more goods and /or services offered by a member or any of its affiliates. An increase in the price of commodity X led to a fall in the supply of commodity Y. Commodities X and Y are competitive supply.
Swali 34 Ripoti
Which of the following factors is not a cause of change in demand? Changes in
Maelezo ya Majibu
The price of the commodity is not a cause of change in demand. Demand refers to the quantity of a good or service that consumers are willing and able to buy at a given price and time. Several factors can cause changes in demand, including changes in consumer income, population size, tastes and preferences, and market trends. However, the price of the commodity itself is not a cause of change in demand. Rather, it is the change in the price that causes a change in the quantity demanded, resulting in a movement along the demand curve. When the price of a good or service increases, the quantity demanded generally decreases, and vice versa. This relationship between price and quantity demanded is known as the law of demand. Therefore, the correct answer is "Price of the commodity."
Swali 35 Ripoti
A benefit that is present in all forms of economic integration is that
Maelezo ya Majibu
Economic integration forms international co-operation among nations to foster their economic interests. Countries with common interests form themselves into an organisation whose major objectives are to remove trade barriers and other obstacles that reduce the free flow of goods and service between them.
Swali 36 Ripoti
A positive effect of a rapid population increase is
Maelezo ya Majibu
The positive effect of the large population is that :
- it increases the availability of cheap labour
- It leads to the formation of the large market as investors would like to invest in a country with a large population
- it motivates people to innovate
Swali 37 Ripoti
Increasing national income without effective control of population size in a country can lead to
Maelezo ya Majibu
An increase in national income without effective control of population size in a country can lead to the underlization of resources in a particular country.
Swali 38 Ripoti
The supply curve of a locally-produced good may shift to the right if
Maelezo ya Majibu
One of the law of supply is, as price increases , the quantity demanded also increase due to the posiive relationship. Therefore, an increase in price will shift the supply curve to the right.
Swali 39 Ripoti
The increase in the demand for a commodity may lead to a decrease in the demand for another if both are
Maelezo ya Majibu
If two commodities have complementary demand, it means that they are typically used together, like cars and gasoline. In this case, an increase in demand for one commodity will lead to an increase in demand for the other. On the other hand, if two commodities are in competitive demand, they are substitutes for each other, like coffee and tea. In this case, an increase in demand for one commodity will lead to a decrease in demand for the other, as consumers will switch to the substitute that has become relatively cheaper or more readily available. If two commodities are in composite demand, it means they are used in the production of a final product, like flour and bread. An increase in demand for the final product will lead to an increase in demand for both commodities, while a decrease in demand for the final product will lead to a decrease in demand for both commodities. Therefore, the answer is: If two commodities are in competitive demand, an increase in the demand for one will lead to a decrease in the demand for the other.
Swali 40 Ripoti
If demand is perfectly inelastic, a tax imposed
Maelezo ya Majibu
If demand is perfectly inelastic, a tax imposed will be borne entirely by the consumer. Perfectly inelastic demand means that the quantity demanded does not change at all in response to a change in price. In this case, the consumers are not able to substitute the taxed product for another product, so they will have to pay the entire amount of the tax. The producer will not bear any of the tax burden because they cannot pass on any of the tax to the consumers through price increases, as the consumers are already willing to pay the original price for the same quantity of the product. For example, if a government imposes a tax on insulin (a life-saving drug for people with diabetes), and the demand for insulin is perfectly inelastic, the consumers will continue to buy the same amount of insulin at the same price, even with the tax. Therefore, the entire burden of the tax will fall on the consumers, who will have to pay more for the same amount of insulin. The producer will not be affected because they can still sell the same amount of insulin at the same price, as the demand is perfectly inelastic.
Swali 41 Ripoti
The middlemen is responsible for
Maelezo ya Majibu
The middlemen plays the role of an intermediary in a distribution or transaction chain who facilitates interaction between the involved parties. The middlemen are the whoselars and retailers who specialise in performing activities relating to the purchase and sale of goods in the process of their flow from producer to the final buyers
Swali 42 Ripoti
If the Central Bank increases its bank rate
Maelezo ya Majibu
If the Central Bank increases its bank rate, it means that it raises the interest rate that it charges banks for borrowing money. This can have several effects on the economy. First, it can make it more expensive for banks to borrow money, which can reduce the amount of money that banks have available to lend to customers. This can cause the supply of money to decrease, which can lead to higher interest rates and less borrowing by consumers and businesses. Second, the higher interest rate charged by the Central Bank can lead to higher interest charges by commercial banks on loans and mortgages, which can discourage borrowing by customers. Overall, an increase in the Central Bank's bank rate can help to control inflation by reducing the supply of money in the economy, but it can also have a negative impact on borrowing and economic growth.
Swali 43 Ripoti
Foreign investment and long term securities in the balance of payment accounts are recorded as
Maelezo ya Majibu
Foreign investment and long-term securities in the balance of payment accounts are recorded as capital account transactions. Let me explain why in a simple and understandable way. The balance of payment accounts is a record of all economic transactions between residents of a country and the rest of the world over a specified period. It provides a comprehensive view of a country's financial interactions with other nations. When foreign investment occurs, it involves the transfer of funds from one country to another for the purpose of acquiring assets or starting new ventures. These investments can take various forms, such as direct investment in businesses, purchases of real estate, or investments in long-term securities like government bonds. In the balance of payment accounts, such investments and transactions are categorized as capital account transactions. The capital account records the flow of capital between countries and includes investments that have a long-term nature or are intended to have a lasting impact on the economy. By categorizing foreign investment and long-term securities under the capital account, the balance of payment accounts highlights the significance of these transactions in terms of capital movement and the potential impact on a country's financial position. It provides valuable information about the inflows and outflows of capital and helps in analyzing the overall economic health and financial stability of a nation. On the other hand, the current account transactions in the balance of payment accounts cover the exchange of goods, services, income, and current transfers between countries. It primarily deals with short-term flows and regular transactions related to trade, services, and payments like exports, imports, tourism, and remittances. While the balance of trade account specifically focuses on the difference between a country's exports and imports of goods and services, the invisible balance account covers items such as income from investments, transfers, and services that are not directly related to tangible goods. In summary, foreign investment and long-term securities are recorded as capital account transactions in the balance of payment accounts. This category captures the movement of capital between countries and provides insights into long-term financial interactions that have a lasting impact on a country's economy.
Swali 44 Ripoti
There is unemployment of resources when production is
Maelezo ya Majibu
Point inside the production possibility curve indicate that resources are not fully employed or inefficient use of resources or there is widespread unemployment.
Swali 45 Ripoti
An argument for the use of commercial policy rest on the need to
Maelezo ya Majibu
Commercial policy may be defined as one that helps in accelarating the rate of economic development. by enabling the under-developed country to have larger share of the gains from trade, by augmenting the rate of capital formation and by promoting industrialization and maintaining equilibrium in the balance of payments.
Swali 46 Ripoti
The production cost that varies inversely with output is the
Maelezo ya Majibu
The production cost that varies inversely with output is the "average cost". In economics, the "average cost" is the total cost of production divided by the quantity of output. It includes both fixed costs (which remain constant regardless of output) and variable costs (which increase with output). When the output increases, the average cost decreases because the fixed cost is spread over a larger quantity of output. Therefore, the average cost is said to vary inversely with output.
Swali 47 Ripoti
Scale of preference shows
Maelezo ya Majibu
The scale of preference refers to the order of priority or ranking of a consumer's wants or needs. It shows the consumer's most preferred choices among different goods and services based on their level of satisfaction or utility derived from them. For example, if a person has a limited budget and has to choose between buying a smartphone or a new pair of shoes, they will choose the item that gives them the most utility or satisfaction first. If the person prefers the smartphone over the shoes, then the smartphone will be at the top of their scale of preference, and the shoes will be lower down the list. The scale of preference helps the consumer to make a rational decision on how to allocate their scarce resources based on their preferences. Therefore, the correct answer is: consumer's wants in order of priority. is incorrect because it refers to the opportunity cost of goods consumed, which is the value of the next best alternative forgone when a choice is made. is incorrect because it refers to the incomes of consumers in order of size. is incorrect because it refers to the utilities enjoyed by consumers, which is the level of satisfaction or usefulness derived from a good or service.
Swali 48 Ripoti
Development planning focuses mainly on
Maelezo ya Majibu
Development planning focuses mainly on mapping out strategies by the government to promote economic and social development in a country. The aim of development planning is to identify the challenges and opportunities facing a country and to develop strategies that can be used to overcome the challenges and exploit the opportunities. This includes identifying priority areas for investment, such as infrastructure, education, and healthcare, and determining the policies and programs that are necessary to achieve the desired outcomes. The process of development planning involves consultation and collaboration between government, private sector, civil society, and other stakeholders, and requires a long-term perspective to ensure that the strategies and policies are sustainable and effective. Therefore, development planning is an important tool for governments to promote economic and social development in a country.
Swali 49 Ripoti
A disadvantage of a jont-stock company is
Maelezo ya Majibu
The owners of the business ( shareholders) have little or no say in the affairs of the business, while the people at the helm of affairs who are not the owners may not put in their best.
Swali 50 Ripoti
An example of transfer payments in national income accounting is
Maelezo ya Majibu
Transfer payment are payment of receipts not resulting from contribution to productive activities in the economy. They are mere transfers from one person to another, for example: pension, bursary, award, gift, unemployment benefit etc. When estimating or calculating national income, transfer payment are excluded
Swali 51 Ripoti
The production of rice and yam on the same farmland is an example of
Maelezo ya Majibu
Joint supply is a type of supply in which the production of one article in itself leads to the production of other article as well. for example, leather and beef etc. It is also a process that can yield two or more outputs.
Swali 52 Ripoti
Which of the following factors may not affect the efficiency of labour?
Maelezo ya Majibu
The factor that may not directly affect the efficiency of labor is the race and color of the workforce. Efficiency of labor refers to how productive and effective workers are in their tasks. While factors such as education and training, provision of welfare services, and the quality of other factor inputs can have a significant impact on labor efficiency, the race and color of the workforce itself does not determine the efficiency of labor. Efficiency of labor primarily depends on factors that directly affect workers' skills, knowledge, and working conditions. Education and training play a crucial role in enhancing workers' abilities and improving their performance, which can increase labor efficiency. Similarly, the provision of welfare services, such as healthcare, social security, and fair working conditions, can positively impact workers' well-being, motivation, and overall productivity. However, race and color are characteristics that do not inherently affect a person's abilities or productivity. They are social and cultural attributes that should not be used as determinants of a worker's efficiency. Labor efficiency should be assessed based on objective criteria related to skills, experience, motivation, and work environment rather than discriminatory factors like race or color. In summary, while factors like education and training, provision of welfare services, and the quality of other factor inputs directly influence labor efficiency, race and color should not be considered as determining factors in assessing the efficiency of labor.
Swali 53 Ripoti
(a) A hypothetical national income data for a country in particular year is presented below:
| ITEM | $MILLION |
| Wages and salaries | 250 |
| Income paid abroad | 75 |
| Income from self-employment | 120 |
| Stock appreciation | 5 |
| Interest | 10 |
| Income received from abroad | 50 |
| Rent | 25 |
| Depreciation allowance | 3 |
| Royalties | 2 |
| Profits and dividends | 35 |
From the data, answer the following questions.
Calculate the: Gross Domestic Product (GDP)
(b) A hypothetical national income data for a country in particular year is presented below:
| ITEM | $MILLION |
| Wages and salaries | 250 |
| Income paid abroad | 75 |
| Income from self-employment | 120 |
| Stock appreciation | 5 |
| Interest | 10 |
| Income received from abroad | 50 |
| Rent | 25 |
| Depreciation allowance | 3 |
| Royalties | 2 |
| Profits and dividends | 35 |
From the data, answer the following questions.
Calculate the: Gross National Product (GNP)
(c) A hypothetical national income data for a country in particular year is presented below:
| ITEM | $MILLION |
| Wages and salaries | 250 |
| Income paid abroad | 75 |
| Income from self employment | 120 |
| Stock appreciation | 5 |
| Interest | 10 |
| Income received from abroad | 50 |
| Rent | 25 |
| Depreciation allowance | 3 |
| Royalties | 2 |
| Profits and dividends | 35 |
From the data, answer the following questions.
Calculate the: Net National Product (NNP)
(a) To calculate the Gross Domestic Product (GDP), we need to sum up all the domestic income earned within the country. This includes wages and salaries, income from self-employment, rent, depreciation allowance, and profits and dividends. GDP = 250 + 120 + 25 + 3 + 35 = $433 million. (b) To calculate the Gross National Product (GNP), we need to add the income received from abroad and subtract the income paid abroad from GDP. This includes income received from abroad, which is $50 million, and income paid abroad, which is $75 million. GNP = GDP + Income Received from Abroad - Income Paid Abroad = $433 + $50 - $75 = $408 million. (c) To calculate the Net National Product (NNP), we need to subtract depreciation allowance from GNP. This is because depreciation is the decrease in the value of assets used in production and it needs to be accounted for to accurately measure the country's economic output. NNP = GNP - Depreciation Allowance = $408 - $3 = $405 million. In summary, the GDP is the total income earned within the country, the GNP is the total income earned by the country's residents (including income from abroad), and the NNP is the GNP minus the depreciation allowance.
Maelezo ya Majibu
(a) To calculate the Gross Domestic Product (GDP), we need to sum up all the domestic income earned within the country. This includes wages and salaries, income from self-employment, rent, depreciation allowance, and profits and dividends. GDP = 250 + 120 + 25 + 3 + 35 = $433 million. (b) To calculate the Gross National Product (GNP), we need to add the income received from abroad and subtract the income paid abroad from GDP. This includes income received from abroad, which is $50 million, and income paid abroad, which is $75 million. GNP = GDP + Income Received from Abroad - Income Paid Abroad = $433 + $50 - $75 = $408 million. (c) To calculate the Net National Product (NNP), we need to subtract depreciation allowance from GNP. This is because depreciation is the decrease in the value of assets used in production and it needs to be accounted for to accurately measure the country's economic output. NNP = GNP - Depreciation Allowance = $408 - $3 = $405 million. In summary, the GDP is the total income earned within the country, the GNP is the total income earned by the country's residents (including income from abroad), and the NNP is the GNP minus the depreciation allowance.
Swali 54 Ripoti
(b) Outline any three short-comings of the Economic Community of West African States (ECOWAS)
(c) Highlight any three achievements of the Economic Community of West African State (ECOWAS)
(a) Economic integration is the process of eliminating trade barriers and creating closer economic ties between countries. This can be achieved through various means, such as reducing tariffs, harmonizing regulations, and facilitating the movement of goods, services, and people across borders.
(b) The Economic Community of West African States (ECOWAS) has several shortcomings, including:
- Limited integration: Despite efforts to create a common market and a monetary union, member states still have significant trade barriers and economic disparities.
- Weak institutions: ECOWAS institutions, such as the court of justice and the parliament, lack sufficient power and resources to enforce regional policies and regulations.
- Political instability: Some member states have experienced political instability, conflicts, and security challenges that have hindered regional integration and cooperation.
(c) The Economic Community of West African States (ECOWAS) has achieved several notable accomplishments, including:
- Trade liberalization: ECOWAS has reduced trade barriers and tariffs between member states, leading to increased intra-regional trade and economic growth.
- Peace and security: ECOWAS has played a critical role in promoting peace, stability, and conflict resolution in the region, including the successful mediation of several political crises.
- Regional integration: ECOWAS has made significant progress in creating a regional common market and a single currency, which could enhance economic integration and facilitate trade and investment within the region.
Maelezo ya Majibu
(a) Economic integration is the process of eliminating trade barriers and creating closer economic ties between countries. This can be achieved through various means, such as reducing tariffs, harmonizing regulations, and facilitating the movement of goods, services, and people across borders.
(b) The Economic Community of West African States (ECOWAS) has several shortcomings, including:
- Limited integration: Despite efforts to create a common market and a monetary union, member states still have significant trade barriers and economic disparities.
- Weak institutions: ECOWAS institutions, such as the court of justice and the parliament, lack sufficient power and resources to enforce regional policies and regulations.
- Political instability: Some member states have experienced political instability, conflicts, and security challenges that have hindered regional integration and cooperation.
(c) The Economic Community of West African States (ECOWAS) has achieved several notable accomplishments, including:
- Trade liberalization: ECOWAS has reduced trade barriers and tariffs between member states, leading to increased intra-regional trade and economic growth.
- Peace and security: ECOWAS has played a critical role in promoting peace, stability, and conflict resolution in the region, including the successful mediation of several political crises.
- Regional integration: ECOWAS has made significant progress in creating a regional common market and a single currency, which could enhance economic integration and facilitate trade and investment within the region.
Swali 55 Ripoti
(a) Define the term limited liability
(b) Describe four differences between a public joint-stock company and a private joint-stock company
(c) Outline three sources of finance available to sole proprietorship
(a) Limited liability is a legal concept that protects the personal assets of business owners from being used to pay off business debts or legal claims. It means that the owners of a business, such as shareholders in a company, are only liable for the debts of the business up to the amount of their investment or shareholding. They are not personally responsible for any debts or liabilities that exceed their investment.
(b) Public joint-stock companies and private joint-stock companies have several differences, including:
- Ownership: A public joint-stock company can have an unlimited number of shareholders, while a private joint-stock company has a limited number of shareholders.
- Share transferability: Shares in a public joint-stock company can be freely traded on a stock exchange, while shares in a private joint-stock company cannot be traded on a stock exchange.
- Disclosure requirements: Public joint-stock companies are required to disclose more information to the public than private joint-stock companies, such as financial statements and ownership details.
- Access to capital: Public joint-stock companies can raise capital more easily through issuing shares to the public, while private joint-stock companies have limited options for raising capital.
(c) Sole proprietorships can access several sources of finance, including:
- Personal savings: The owner of a sole proprietorship can use their own savings to finance the business.
- Loans: Sole proprietors can apply for loans from banks or other financial institutions to finance their business operations.
- Credit cards: Some sole proprietors may use credit cards to cover business expenses, although this can be risky due to high interest rates.
In summary, limited liability protects business owners from personal liability for business debts, public and private joint-stock companies differ in terms of ownership, share transferability, disclosure requirements, and access to capital, and sole proprietors can access finance from personal savings, loans, and credit cards.
Maelezo ya Majibu
(a) Limited liability is a legal concept that protects the personal assets of business owners from being used to pay off business debts or legal claims. It means that the owners of a business, such as shareholders in a company, are only liable for the debts of the business up to the amount of their investment or shareholding. They are not personally responsible for any debts or liabilities that exceed their investment.
(b) Public joint-stock companies and private joint-stock companies have several differences, including:
- Ownership: A public joint-stock company can have an unlimited number of shareholders, while a private joint-stock company has a limited number of shareholders.
- Share transferability: Shares in a public joint-stock company can be freely traded on a stock exchange, while shares in a private joint-stock company cannot be traded on a stock exchange.
- Disclosure requirements: Public joint-stock companies are required to disclose more information to the public than private joint-stock companies, such as financial statements and ownership details.
- Access to capital: Public joint-stock companies can raise capital more easily through issuing shares to the public, while private joint-stock companies have limited options for raising capital.
(c) Sole proprietorships can access several sources of finance, including:
- Personal savings: The owner of a sole proprietorship can use their own savings to finance the business.
- Loans: Sole proprietors can apply for loans from banks or other financial institutions to finance their business operations.
- Credit cards: Some sole proprietors may use credit cards to cover business expenses, although this can be risky due to high interest rates.
In summary, limited liability protects business owners from personal liability for business debts, public and private joint-stock companies differ in terms of ownership, share transferability, disclosure requirements, and access to capital, and sole proprietors can access finance from personal savings, loans, and credit cards.
Swali 56 Ripoti
(a) What is a demand schedule?
(b)Explain each of the following terms:
→effective demand
→composite demand
→derived demand
(ci) Using appropriate diagrams, explain how a change in the price of a commodity would influence the demand of its:
substitute
(ii) Using appropriate diagrams, explain how a change in the price of a commodity would influence the demand of its:
complement
(a) A demand schedule is a table or chart that shows the quantity of a good or service that consumers are willing and able to purchase at different price levels, while other factors remain constant. It represents the relationship between price and quantity demanded, demonstrating the amount of a product consumers are willing to buy at various price points.
(b) Here are explanations for each of the terms mentioned:
- Effective demand: Effective demand refers to the desire and ability of consumers to purchase a product or service at a given price level. It takes into account both the willingness and the financial capability of individuals to buy goods or services. Effective demand considers the affordability aspect in addition to the desire to purchase.
- Composite demand: Composite demand occurs when a good or resource has multiple uses or serves different purposes. In other words, a product or resource is in demand for various reasons or by different industries or consumers. The demand for the good or resource is influenced by multiple factors and markets, making it a composite demand.
- Derived demand: Derived demand refers to the demand for a good or service that arises as a result of the demand for another related good or service. It occurs when the demand for one product is dependent on the demand for another product that it is used to produce or complement. The demand for derived goods is derived from the demand for the final product or the primary goods it supports.
(ci) A change in the price of a commodity can influence the demand for its substitute. Let's consider the scenario of coffee and tea as substitutes. If the price of coffee increases, it becomes relatively more expensive compared to tea. As a result, consumers may switch their preference from coffee to tea due to the lower price. This change in price creates an incentive for consumers to substitute one product (coffee) with its alternative (tea), leading to an increase in the demand for tea.
To illustrate this on a demand diagram, we would see a shift in the demand curve for tea to the right. The new equilibrium quantity of tea would increase, indicating higher demand, while the equilibrium quantity of coffee would decrease.
(ii) A change in the price of a commodity can influence the demand for its complement. Let's take the example of cars and gasoline as complements. If the price of cars decreases, it becomes more affordable for consumers, leading to an increase in car purchases. As a result, the demand for gasoline, which is necessary to fuel and operate the cars, would also increase.
On a demand diagram, we would observe a rightward shift in the demand curve for gasoline, indicating an increase in demand. The equilibrium quantity of gasoline would rise as consumers require more fuel to meet the increased demand for cars.
In both cases, the change in the price of a commodity influences the demand for its substitute or complement due to the relationship and interdependence between the products.
Maelezo ya Majibu
(a) A demand schedule is a table or chart that shows the quantity of a good or service that consumers are willing and able to purchase at different price levels, while other factors remain constant. It represents the relationship between price and quantity demanded, demonstrating the amount of a product consumers are willing to buy at various price points.
(b) Here are explanations for each of the terms mentioned:
- Effective demand: Effective demand refers to the desire and ability of consumers to purchase a product or service at a given price level. It takes into account both the willingness and the financial capability of individuals to buy goods or services. Effective demand considers the affordability aspect in addition to the desire to purchase.
- Composite demand: Composite demand occurs when a good or resource has multiple uses or serves different purposes. In other words, a product or resource is in demand for various reasons or by different industries or consumers. The demand for the good or resource is influenced by multiple factors and markets, making it a composite demand.
- Derived demand: Derived demand refers to the demand for a good or service that arises as a result of the demand for another related good or service. It occurs when the demand for one product is dependent on the demand for another product that it is used to produce or complement. The demand for derived goods is derived from the demand for the final product or the primary goods it supports.
(ci) A change in the price of a commodity can influence the demand for its substitute. Let's consider the scenario of coffee and tea as substitutes. If the price of coffee increases, it becomes relatively more expensive compared to tea. As a result, consumers may switch their preference from coffee to tea due to the lower price. This change in price creates an incentive for consumers to substitute one product (coffee) with its alternative (tea), leading to an increase in the demand for tea.
To illustrate this on a demand diagram, we would see a shift in the demand curve for tea to the right. The new equilibrium quantity of tea would increase, indicating higher demand, while the equilibrium quantity of coffee would decrease.
(ii) A change in the price of a commodity can influence the demand for its complement. Let's take the example of cars and gasoline as complements. If the price of cars decreases, it becomes more affordable for consumers, leading to an increase in car purchases. As a result, the demand for gasoline, which is necessary to fuel and operate the cars, would also increase.
On a demand diagram, we would observe a rightward shift in the demand curve for gasoline, indicating an increase in demand. The equilibrium quantity of gasoline would rise as consumers require more fuel to meet the increased demand for cars.
In both cases, the change in the price of a commodity influences the demand for its substitute or complement due to the relationship and interdependence between the products.
Swali 57 Ripoti
(a) Distinguish between labour force and efficiency of labour
(b) Describe five factors which determine the size of the labour force in a country
(a) Labour force and efficiency of labour are two related but distinct concepts. The labour force refers to the total number of people who are employed or actively seeking employment in a particular country or region. This includes both employed and unemployed individuals who are able and willing to work. Efficiency of labour, on the other hand, refers to the productivity or output of a given unit of labour in a given period of time. It is a measure of how much output can be produced with a given amount of labour input.
(b) There are several factors that can determine the size of the labour force in a country. These include:
- Population growth: The size of the labour force is directly related to the size of the population. If the population is growing, then the potential size of the labour force will also increase.
- Age distribution: The age distribution of the population can also affect the size of the labour force. For example, if a large portion of the population is elderly or too young to work, then the labour force may be smaller.
- Education and training: The level of education and training in a country can impact the size of the labour force. Higher levels of education and training can lead to a more skilled and productive workforce, which can increase the size of the labour force.
- Immigration and emigration: The flow of people into and out of a country can also affect the size of the labour force. Immigration can increase the labour force, while emigration can decrease it.
- Labour force participation rate: The labour force participation rate is the percentage of the working-age population that is either employed or actively seeking employment. A high labour force participation rate can result in a larger labour force.
Therefore, the five factors that determine the size of the labour force in a country are population growth, age distribution, education and training, immigration and emigration, and labour force participation rate.
Maelezo ya Majibu
(a) Labour force and efficiency of labour are two related but distinct concepts. The labour force refers to the total number of people who are employed or actively seeking employment in a particular country or region. This includes both employed and unemployed individuals who are able and willing to work. Efficiency of labour, on the other hand, refers to the productivity or output of a given unit of labour in a given period of time. It is a measure of how much output can be produced with a given amount of labour input.
(b) There are several factors that can determine the size of the labour force in a country. These include:
- Population growth: The size of the labour force is directly related to the size of the population. If the population is growing, then the potential size of the labour force will also increase.
- Age distribution: The age distribution of the population can also affect the size of the labour force. For example, if a large portion of the population is elderly or too young to work, then the labour force may be smaller.
- Education and training: The level of education and training in a country can impact the size of the labour force. Higher levels of education and training can lead to a more skilled and productive workforce, which can increase the size of the labour force.
- Immigration and emigration: The flow of people into and out of a country can also affect the size of the labour force. Immigration can increase the labour force, while emigration can decrease it.
- Labour force participation rate: The labour force participation rate is the percentage of the working-age population that is either employed or actively seeking employment. A high labour force participation rate can result in a larger labour force.
Therefore, the five factors that determine the size of the labour force in a country are population growth, age distribution, education and training, immigration and emigration, and labour force participation rate.
Swali 58 Ripoti
(a) Explain the following types of taxes:
i. specific tax
ii. value-added tax
(bi) With the aid of diagrams, describe the effects of an indirect tax on a commodity when demand is:
perfectly inelastic
(ii) With the aid of diagrams, describe the effects of an indirect tax on a commodity when demand is:
perfectly elastic
(a) Types of Taxes:
- Specific Tax: A specific tax is a tax that is fixed and imposed on a particular commodity regardless of its price. It is usually imposed as a fixed amount per unit of the commodity. For example, a government may impose a specific tax of $2 per unit of cigarette sold.
- Value-added Tax (VAT): A value-added tax is a tax that is imposed at each stage of production and distribution of a commodity. It is calculated as a percentage of the value added at each stage of production or distribution. For example, if a manufacturer produces a shirt and sells it to a retailer for $10, and the VAT rate is 10%, the manufacturer will pay $1 as VAT. When the retailer sells the same shirt to a customer for $20, the retailer will collect $2 as VAT ($20 x 10%).
(bi) Effects of Indirect Tax on Commodity when Demand is Perfectly Inelastic:
When demand is perfectly inelastic, a change in price does not affect the quantity demanded. Therefore, the imposition of an indirect tax on the commodity will not affect the quantity demanded. The entire burden of the tax will be borne by the consumer, and the price paid by the consumer will increase by the full amount of the tax. The diagram below illustrates the effects of an indirect tax on a commodity with perfectly inelastic demand.
the demand curve is perfectly vertical, and the supply curve shifts upward to represent the tax. The vertical distance between the old and new supply curves represents the tax, and the entire burden is paid by the consumer as the price paid increases by the full amount of the tax.
(ii) Effects of Indirect Tax on Commodity when Demand is Perfectly Elastic:
When demand is perfectly elastic, a small increase in price will cause the quantity demanded to fall to zero. Therefore, the imposition of an indirect tax on the commodity will result in the entire burden of the tax being borne by the supplier. The price paid by the consumer will remain the same, and the supplier will have to bear the full amount of the tax. The diagram below illustrates the effects of an indirect tax on a commodity with perfectly elastic demand.
the demand curve is perfectly horizontal, and the supply curve shifts upward to represent the tax. The vertical distance between the old and new supply curves represents the tax, and the entire burden is paid by the supplier as the price received remains the same.
Maelezo ya Majibu
(a) Types of Taxes:
- Specific Tax: A specific tax is a tax that is fixed and imposed on a particular commodity regardless of its price. It is usually imposed as a fixed amount per unit of the commodity. For example, a government may impose a specific tax of $2 per unit of cigarette sold.
- Value-added Tax (VAT): A value-added tax is a tax that is imposed at each stage of production and distribution of a commodity. It is calculated as a percentage of the value added at each stage of production or distribution. For example, if a manufacturer produces a shirt and sells it to a retailer for $10, and the VAT rate is 10%, the manufacturer will pay $1 as VAT. When the retailer sells the same shirt to a customer for $20, the retailer will collect $2 as VAT ($20 x 10%).
(bi) Effects of Indirect Tax on Commodity when Demand is Perfectly Inelastic:
When demand is perfectly inelastic, a change in price does not affect the quantity demanded. Therefore, the imposition of an indirect tax on the commodity will not affect the quantity demanded. The entire burden of the tax will be borne by the consumer, and the price paid by the consumer will increase by the full amount of the tax. The diagram below illustrates the effects of an indirect tax on a commodity with perfectly inelastic demand.
the demand curve is perfectly vertical, and the supply curve shifts upward to represent the tax. The vertical distance between the old and new supply curves represents the tax, and the entire burden is paid by the consumer as the price paid increases by the full amount of the tax.
(ii) Effects of Indirect Tax on Commodity when Demand is Perfectly Elastic:
When demand is perfectly elastic, a small increase in price will cause the quantity demanded to fall to zero. Therefore, the imposition of an indirect tax on the commodity will result in the entire burden of the tax being borne by the supplier. The price paid by the consumer will remain the same, and the supplier will have to bear the full amount of the tax. The diagram below illustrates the effects of an indirect tax on a commodity with perfectly elastic demand.
the demand curve is perfectly horizontal, and the supply curve shifts upward to represent the tax. The vertical distance between the old and new supply curves represents the tax, and the entire burden is paid by the supplier as the price received remains the same.
Swali 59 Ripoti
(a) Distinguish between a:
→mortgage bank and a merchant bank
→commercial bank and a development bank
(b) Explain any four functions of commercial banks
(a) → A mortgage bank is a financial institution that specializes in providing loans for the purchase of real estate, while a merchant bank is a financial institution that specializes in providing advisory services to businesses and governments, such as underwriting, corporate finance, and merger and acquisition activities. → A commercial bank is a financial institution that provides a wide range of banking services to individuals, small and medium-sized businesses, and corporations, such as accepting deposits, making loans, and providing investment and advisory services. On the other hand, a development bank is a financial institution that focuses on providing long-term financing and other support for economic development projects, particularly in developing countries.
(b) Four functions of commercial banks are:
- Accepting deposits: Commercial banks accept deposits from individuals and businesses, which can be withdrawn at any time or kept for a fixed term, depending on the type of account. This allows individuals and businesses to earn interest on their savings and also provides a source of funding for the bank to make loans.
- Making loans: Commercial banks lend money to individuals and businesses for various purposes, such as purchasing a home or car, starting a business, or financing operations. The bank earns interest on the loans and also helps to stimulate economic growth by providing access to capital.
- Providing payment services: Commercial banks provide various payment services, such as issuing debit and credit cards, processing checks, and facilitating electronic transfers. This helps individuals and businesses to make transactions and payments more efficiently and securely.
- Offering investment and advisory services: Commercial banks also offer investment and advisory services to individuals and businesses, such as managing investment portfolios, providing financial planning advice, and offering insurance products. This allows customers to diversify their assets and manage their finances more effectively.
Maelezo ya Majibu
(a) → A mortgage bank is a financial institution that specializes in providing loans for the purchase of real estate, while a merchant bank is a financial institution that specializes in providing advisory services to businesses and governments, such as underwriting, corporate finance, and merger and acquisition activities. → A commercial bank is a financial institution that provides a wide range of banking services to individuals, small and medium-sized businesses, and corporations, such as accepting deposits, making loans, and providing investment and advisory services. On the other hand, a development bank is a financial institution that focuses on providing long-term financing and other support for economic development projects, particularly in developing countries.
(b) Four functions of commercial banks are:
- Accepting deposits: Commercial banks accept deposits from individuals and businesses, which can be withdrawn at any time or kept for a fixed term, depending on the type of account. This allows individuals and businesses to earn interest on their savings and also provides a source of funding for the bank to make loans.
- Making loans: Commercial banks lend money to individuals and businesses for various purposes, such as purchasing a home or car, starting a business, or financing operations. The bank earns interest on the loans and also helps to stimulate economic growth by providing access to capital.
- Providing payment services: Commercial banks provide various payment services, such as issuing debit and credit cards, processing checks, and facilitating electronic transfers. This helps individuals and businesses to make transactions and payments more efficiently and securely.
- Offering investment and advisory services: Commercial banks also offer investment and advisory services to individuals and businesses, such as managing investment portfolios, providing financial planning advice, and offering insurance products. This allows customers to diversify their assets and manage their finances more effectively.
Swali 60 Ripoti
(ai) The diagram above shows the effects of the introduction of a subsidy on the production of maize. Study the diagram and answer the questions that follow.
Identify the curves labelled X,Y,Z
(aii) The diagram below shows the effects of the introduction of a subsidy on the production of maize. Study the diagram and answer the questions that follow.
State the direction of change in price and quantity with the introduction of subsidy
(bi) The diagram below shows the effects of the introduction of a subsidy on the production of maize. Study the diagram and answer the questions that follow.
Calculate the total revenue of the producers before the introduction of subsidy
(bii) The diagram below shows the effects of the introduction of a subsidy on the production of maize. Study the diagram and answer the questions that follow.
Calculate the total revenue of the producers after the introduction of subsidy
(c) The diagram below shows the effects of the introduction of a subsidy on the production of maize. Study the diagram and answer the questions that follow.
Calculate the percentage increase or decrease in total revenue of the producers with the introduction of subsidy
(d) The diagram below shows the effects of the introduction of a subsidy on the production of maize. Study the diagram and answer the questions that follow.
If the quantity demanded of maize increases from 20 to 40 bags as a result of a fall in price from $15 to $10, calculate the price elasticity of demand.
(e) The diagram below shows the effects of the introduction of a subsidy on the production of maize. Study the diagram and answer the questions that follow.
State the type of elasticity of demand in 2(d).
(ai) - The curve X represents the demand curve
- The curve Y represents the old supply curve
- The curve Z represents the new supply curve
(aii) Subsidy will shift the supply curve to the right causing price to fall and the quantity demanded to increase
(bi) Total revenue = Price x Quantity
Before subsidy, TR = 20 x 15
= $300
(bii) After subsidy, TR = 10 x 40
= $400
(c) % increase in revenue = 400 - 300/300 x 100
= 33.33%
(d) e = ∆Qd/∆P x P/Qd
e = 40 - 20/10 - 15 x 15/20
e = 20/-5 x 15/20
e = - 3 since elasticity is always positive. Therefore, e = 3
(e) It is an elastic demand because an increase in quantity demanded leads to a fall in the price of maize.
Maelezo ya Majibu
(ai) - The curve X represents the demand curve
- The curve Y represents the old supply curve
- The curve Z represents the new supply curve
(aii) Subsidy will shift the supply curve to the right causing price to fall and the quantity demanded to increase
(bi) Total revenue = Price x Quantity
Before subsidy, TR = 20 x 15
= $300
(bii) After subsidy, TR = 10 x 40
= $400
(c) % increase in revenue = 400 - 300/300 x 100
= 33.33%
(d) e = ∆Qd/∆P x P/Qd
e = 40 - 20/10 - 15 x 15/20
e = 20/-5 x 15/20
e = - 3 since elasticity is always positive. Therefore, e = 3
(e) It is an elastic demand because an increase in quantity demanded leads to a fall in the price of maize.
