WAEC SSCE - Economics - 2015

Maelezo ya Majibu

If a change in price causes a relatively larger change in the quantity demanded, this indicates that demand is relatively price elastic. In other words, consumers are sensitive to changes in price and are more likely to adjust their consumption behavior in response to changes in price. This means that if prices increase, consumers will reduce their quantity demanded by a larger proportion, while if prices decrease, consumers will increase their quantity demanded by a larger proportion. Conversely, if a change in price causes a relatively smaller change in the quantity demanded, demand is relatively price inelastic, meaning consumers are less sensitive to changes in price. The price elasticity of demand is a measure of the responsiveness of quantity demanded to changes in price, and when demand is relatively price elastic, the price elasticity of demand will be greater than 1.

Maelezo ya Majibu

When the demand for foreign exchange exceeds its supply, the value of the domestic currency depreciates. Foreign exchange refers to the currency of other countries that is exchanged for domestic currency. When the demand for foreign exchange is greater than its supply, it means that there are more people who want to buy foreign currency than those who want to sell it. As a result, the price of foreign currency in terms of domestic currency increases. The increase in the price of foreign currency means that each unit of domestic currency can purchase less foreign currency. In other words, the value of the domestic currency has decreased. Therefore, when the demand for foreign exchange exceeds its supply, the value of the domestic currency depreciates.

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Frictional unemployment occurs when job seekers lack information about where jobs exist. Frictional unemployment refers to the temporary unemployment that occurs when workers are in the process of transitioning between jobs. It is a natural and inevitable part of a healthy labor market, as workers may leave their current jobs to seek better opportunities or may be entering the job market for the first time. In many cases, job seekers may not know about all the available job opportunities, making it difficult for them to find suitable employment. This lack of information can be due to various reasons, such as not having access to the right networks, not knowing where to look for job postings, or not being aware of the skills that are in demand in the job market. Therefore, frictional unemployment occurs when workers are between jobs and are looking for new employment opportunities, but may not be aware of all the available opportunities due to a lack of information.

Maelezo ya Majibu

Maelezo ya Majibu

The correct option is "intersection of demand and supply." This is because the intersection of demand and supply determines the market price of a commodity. When the demand for a commodity is higher than its supply, the market price increases, and when the supply is higher than the demand, the market price decreases. Factors such as an increase in demand, change in taste, or increase in supply can affect the demand and supply curves, leading to a shift in the intersection point and consequently, a change in the market price. However, the intersection point itself does not affect the market price.

Maelezo ya Majibu

Maelezo ya Majibu

One reason for low agricultural productivity in most West African countries is that farmers find it difficult getting help from financial institutions. Agriculture requires a significant amount of capital to invest in inputs such as seeds, fertilizers, and equipment. However, many farmers in West African countries lack access to credit or financial institutions that can provide loans for investment in their farms. Without access to credit, farmers are unable to invest in their farms, leading to low productivity and yields. In addition, they may not be able to afford the necessary inputs, such as fertilizers or improved seeds, which can further reduce their productivity. Therefore, limited access to credit and financial institutions is a significant barrier to increasing agricultural productivity in West African countries.

Maelezo ya Majibu

The total revenue from indirect tax can be calculated by adding the amount from custom and excise duties, and the amount from value added tax. Therefore, the total revenue from indirect tax is $300.20m + $100.00m = $400.20m. So the correct answer is option number 2, which is $400.20m.

Maelezo ya Majibu

A conscious effort of the government to achieve a specific set of goals is called economic planning. It involves the formulation and implementation of policies, strategies, and programs aimed at achieving certain economic objectives, such as increasing employment, reducing inflation, and promoting sustainable economic growth. Economic planning is often guided by long-term vision, data analysis, and consultation with stakeholders to ensure that the policies and programs are well-designed and effectively executed.

Maelezo ya Majibu

To calculate total utility (TU) from given levels of marginal utility (MU), one has to add MU from the various levels. Marginal utility (MU) is the additional utility a consumer derives from consuming an extra unit of a good. Total utility (TU) is the sum of the marginal utilities of all the units of a good consumed. Therefore, to calculate TU from given levels of MU, we add the MU from each unit of the good consumed until we reach the total number of units consumed. This will give us the total utility derived from consuming all the units.

Maelezo ya Majibu

Total cost is obtained by "adding up the total variable cost and total fixed cost." Total variable cost is the cost that varies with the level of output, such as the cost of raw materials, labor, and energy. Total fixed cost is the cost that remains constant regardless of the level of output, such as rent, insurance, and salaries. To calculate total cost, we add up the total variable cost and total fixed cost. This gives us the total cost of producing a given level of output. Calculating total cost by "adding up the marginal cost at each level" is not correct because marginal cost is the additional cost of producing one more unit of output, and summing up these costs does not give us the total cost of producing all units of output. Similarly, "dividing the total cost of output at each level" and "adding up the average variable cost at each level" are not correct methods for calculating total cost.

Maelezo ya Majibu

An increase in production subsidies will shift the supply curve to the right. Production subsidies are payments or other incentives that are provided to producers to increase their production of a particular good or service. By reducing the costs of production, subsidies make it more profitable for firms to produce and sell a product at any given price level. As a result, firms are able to supply more of the product to the market at each price level, which causes the supply curve to shift to the right. An outward shift of the supply curve means that more of the product is supplied at every price level, ceteris paribus. This increase in supply can lead to lower prices and higher output levels in the market. The demand curve, on the other hand, is not affected by changes in production subsidies since it reflects consumers' willingness and ability to purchase a product at various price levels. Therefore, an increase in production subsidies only affects the supply curve, and not the demand curve.

Maelezo ya Majibu

The average fixed cost curve is not U shaped. This curve represents the average fixed cost of production, which is the total fixed cost divided by the quantity of output produced. Since fixed costs do not vary with the level of output, the average fixed cost curve slopes downward as output increases, but approaches zero as output approaches infinity. In contrast, the marginal cost curve, average total cost curve, and average variable cost curve are all U-shaped. The marginal cost curve shows the additional cost of producing one more unit of output, which initially decreases due to economies of scale but eventually increases due to diminishing marginal returns. This gives the marginal cost curve its characteristic U shape. The average total cost curve, which represents the total cost per unit of output produced, is also U-shaped because it is influenced by both fixed and variable costs. At low levels of output, the average total cost is high due to the spreading of fixed costs over a smaller output, while at high levels of output, the average total cost increases due to the law of diminishing returns. The average variable cost curve, which represents the variable cost per unit of output produced, is also U-shaped due to the influence of diminishing marginal returns on variable costs. In summary, the average fixed cost curve is not U-shaped because it represents the fixed cost per unit of output, which does not vary with changes in output.

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In national income accounting, the term "net" is used to indicate that a value excludes some specific elements, such as depreciation. Depreciation refers to the decrease in the value of a fixed asset due to wear and tear or obsolescence. When calculating national income, it is important to exclude the amount of depreciation to avoid overstating the actual income earned during a period. Therefore, when a value is referred to as "net" in national income accounting, it means that it has been adjusted to exclude certain factors such as depreciation, and only reflects the income earned after subtracting those factors.

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The main item traded on a stock exchange market is new shares. A stock exchange is a market where shares of publicly traded companies are bought and sold by investors. When a company decides to go public, it issues new shares of stock, which are then sold to investors in an initial public offering (IPO). Once the shares are publicly traded, they can be bought and sold on the stock exchange market. Investors buy and sell shares of stock on the stock exchange market based on their assessment of the company's future prospects and the expected return on investment. When an investor buys a share of stock, they become a part owner of the company and are entitled to a portion of its profits. Therefore, the main item traded on a stock exchange market is new shares of publicly traded companies.

Maelezo ya Majibu

Inflation may occur if there is "excessive demand with limited supply." This means that when there is an increase in demand for goods and services in the economy, but the supply of these goods and services is limited, their prices tend to rise. For example, when consumers have more money to spend due to higher wages or government stimulus, they may demand more goods and services, which can lead to an increase in prices if the supply of those goods and services is not able to keep up with the demand. Inflation is not caused by "excess supply over demand" because when there is more supply of goods and services than demand, prices tend to fall. An "increase in productivity" can actually lead to lower prices if it allows for the production of more goods and services at a lower cost. "Increased government spending in a depressed economy" can stimulate economic growth and create jobs, but it is not a direct cause of inflation unless it leads to an increase in demand for goods and services that exceeds the available supply.

Maelezo ya Majibu

In order to correct an adverse balance of payments problem, the government should increase exports and/or reduce imports. This can be achieved through a combination of policies, including: 1. Devaluation of the domestic currency: This makes exports cheaper and imports more expensive, thereby increasing the demand for domestic goods and reducing the demand for foreign goods. 2. Export promotion: This includes providing subsidies, tax incentives, and other forms of support to domestic firms that export goods and services. 3. Import substitution: This involves encouraging domestic production of goods that are currently imported, through measures such as tariffs, quotas, and other trade barriers. 4. Reduction of government spending: This can help to reduce imports and conserve foreign exchange reserves. 5. Fiscal and monetary policies: The government can use fiscal and monetary policies to control inflation, maintain exchange rate stability, and promote economic growth. In summary, the government has a range of policy tools to correct an adverse balance of payments problem, including currency devaluation, export promotion, import substitution, reduction of government spending, and fiscal and monetary policies. The specific combination of policies will depend on the nature and severity of the balance of payments problem, as well as the country's overall economic goals and priorities.

Maelezo ya Majibu

Maelezo ya Majibu

In developing countries, a larger percentage of the labor force is employed in the primary sector. The primary sector includes industries involved in the extraction and collection of natural resources such as agriculture, mining, forestry, and fishing. This is because developing countries tend to have large rural populations and rely heavily on their natural resources for economic development. As countries develop, they tend to shift towards the secondary and tertiary sectors, which involve manufacturing and services respectively.

Maelezo ya Majibu

The movement of labor from one grade to an entirely different grade is an example of "vertical occupational mobility." This means that an employee is moving up or down the career ladder, changing job positions from a lower-level to a higher-level or vice versa. For example, an entry-level employee in a company might get promoted to a higher-level position, such as a manager, through their hard work and skills. On the other hand, an employee may be demoted to a lower-level position if they fail to meet the expectations or qualifications required for their current job. Vertical occupational mobility is different from "horizontal occupational mobility," which refers to the movement of workers within the same job grade or occupation. "Industrial labor mobility" refers to the movement of workers from one industry to another, and "geographical mobility" refers to the movement of workers from one geographic location to another for employment.

Maelezo ya Majibu

The difference between Gross Domestic Product (GDP) and Gross National Product (GNP) is the net income from abroad. GDP is the total value of goods and services produced within a country's borders in a specific period, usually a year. It includes the production of both domestic and foreign-owned businesses located within the country. GNP, on the other hand, is the total value of goods and services produced by a country's citizens, regardless of their location, in a specific period, usually a year. GNP includes the production of both domestic and foreign-owned businesses in which the country's citizens have a stake, regardless of where those businesses are located. The difference between GDP and GNP is the net income from abroad, which is the income earned by a country's citizens and businesses from investments made abroad, minus the income earned by foreign citizens and businesses from investments made within the country. For example, if a U.S. citizen owns a business in Canada, the income generated by that business is included in Canada's GDP, but it is also included in the U.S.'s GNP, since the owner is a U.S. citizen. However, if a Canadian citizen owns a business in the U.S., the income generated by that business is included in the U.S.'s GDP, but it is not included in Canada's GNP, since the owner is not a Canadian citizen. Therefore, the difference between GDP and GNP is the net income from abroad, which reflects the income earned by a country's citizens and businesses from investments made abroad, minus the income earned by foreign citizens and businesses from investments made within the country.

Maelezo ya Majibu

Land refers to the physical surface of the earth that is not covered by water. Out of the given options, forests and roads can be described as land. Forests are areas of land covered with trees and underbrush, while roads are man-made pathways constructed on land. Diamond and crude oil are not land as they are natural resources found beneath the surface of the earth. Diamond is a mineral formed deep within the earth's mantle and brought to the surface through volcanic activity or mining. Crude oil is a fossil fuel found in rock formations beneath the earth's surface, and it is extracted through drilling.

Maelezo ya Majibu

The value obtained by adding all the marginal products at each level of employment of the variable input is equal to the total product. The total product is the total output produced by a firm using a given combination of inputs, including both fixed and variable inputs. The marginal product, on the other hand, is the additional output that is produced by using one more unit of the variable input, while holding all other inputs constant. By adding up all the marginal products, we can calculate the total amount of output that is produced using all units of the variable input. For example, if a firm produces 10 units of output using 2 units of labor and 1 unit of capital, and it produces 20 units of output using 4 units of labor and 1 unit of capital, then the marginal product of labor is 10 units of output (20 - 10), which is the additional output produced by using 2 more units of labor while holding the amount of capital constant. If we add up all the marginal products of labor at each level of employment of labor, we obtain the total product, which is the total output produced using all units of labor. In summary, adding all the marginal products at each level of employment of the variable input gives us the total product, which is the total amount of output produced by a firm using a given combination of inputs.

Maelezo ya Majibu

Maelezo ya Majibu

Maelezo ya Majibu

If the price of floor rises, it means the cost of producing bread goes up because flour is one of the ingredients used to make bread. As a result, suppliers of bread may have to pay more for flour which will cause the supply curve to shift to the left. This means there will be less bread available in the market at the same price. On the other hand, if the price of bread remains the same, consumers may not be able to afford to buy as much bread because the cost of producing it has gone up. This will cause the demand curve to shift to the left as well. The combination of a leftward shift in both supply and demand curves will result in a decrease in the quantity of bread bought and sold in the market, and a potential increase in the price of bread. In summary, if the price of flour rises, the supply curve for bread will shift to the left, and this could lead to an increase in the price of bread due to a decrease in the quantity supplied and demanded.

Maelezo ya Majibu

Maelezo ya Majibu

Maelezo ya Majibu

Economics is regarded as a science because it uses scientific methods to explain human behavior. Science is a systematic and logical approach to discovering how things in the universe work. It involves developing theories, conducting experiments, and using empirical evidence to test hypotheses. Similarly, economics is a social science that studies how individuals, businesses, and governments allocate scarce resources to satisfy their unlimited wants and needs. Economists use scientific methods to study economic phenomena. They develop economic theories, which are tested using empirical evidence, such as data on prices, incomes, and economic growth. They use statistical tools and mathematical models to analyze economic data and draw conclusions about how the economy works. Therefore, economics is regarded as a science because it uses scientific methods to explain human behavior in relation to how resources are allocated to satisfy unlimited wants and needs.

Maelezo ya Majibu

Token money refers to currency and coins that are in circulation and have a face value that is higher than their intrinsic or material value. This means that the value of the metal or paper used to create the currency or coin is less than the value assigned to it by the government. For example, a paper bill may only cost a few cents to produce, but its face value might be $10. Similarly, a coin made of cheap metal may only be worth a few cents, but it may have a face value of $1. Token money is different from commodity money, which has intrinsic value based on the material it is made from, such as gold or silver. Token money is valuable because people trust that they can exchange it for goods and services, even though the value of the material itself is relatively low. Overall, is the correct answer to the question because it accurately describes token money as having a face value that exceeds its material value.

Maelezo ya Majibu

One benefit to a member country of World Bank is "easy access to long-term loans." The World Bank is an international organization that provides loans and technical assistance to developing countries for various projects such as infrastructure development, education, and poverty reduction. Access to long-term loans from the World Bank can provide member countries with the funds needed to undertake development projects that may otherwise be difficult to finance. These loans typically have low-interest rates and longer repayment periods than commercial loans, which can help reduce the burden of debt repayment on the borrowing country. The World Bank does not directly manage foreign exchange or mediate in labor disputes, although it may provide technical assistance or advice on these issues. Financing balance of payment deficit is another potential benefit of World Bank membership, as the organization may provide loans to help countries address temporary shortfalls in their foreign currency reserves. However, access to long-term loans is generally seen as the primary benefit of membership in the World Bank.

Maelezo ya Majibu

The correct answer is "scarcity of resources". Scarcity of resources is not a criteria for identifying an economic system, but rather a fundamental problem that all economic systems have to deal with. Scarcity refers to the limited nature of resources, which means that society has to make choices about how to allocate them. The other criteria listed - ownership of resources, method of decision making, and motivation for production - are all important factors in determining the type of economic system that a society has. For example, a capitalist economic system is characterized by private ownership of resources, market-based decision making, and profit as the main motivation for production, while a socialist economic system is characterized by public ownership of resources, centralized decision making, and meeting the needs of society as the main motivation for production.

Maelezo ya Majibu

A country has favorable terms of trade when the prices of her exports rise relative to the price of her imports. In other words, when the price a country receives for the goods and services it exports increases more than the price it pays for the goods and services it imports, it has favorable terms of trade. This means the country is able to generate more revenue from its exports than it spends on its imports, leading to an overall improvement in its balance of trade and economic well-being.

Maelezo ya Majibu

The feature that distinguishes a public limited company from a private limited company is the sales of shares to the public. A public limited company is a type of business organization that offers its shares for sale to the general public, and therefore, anyone can purchase the shares of the company. On the other hand, a private limited company cannot offer its shares for sale to the public, as it can only sell its shares to a select group of individuals who are known as shareholders. The other features mentioned such as perpetual existence, limited liability, and legal entity can apply to both public and private limited companies.

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Maelezo ya Majibu

Maelezo ya Majibu

A joint-stock company is likely to experience disagreements between management and shareholders. This is because a joint-stock company is owned by shareholders who provide the capital for the company's operations but do not have direct control over its management. The management is responsible for making decisions on behalf of the company, and these decisions may not always align with the interests of shareholders. Shareholders may also have different opinions on how the company should be run, leading to disagreements with management. In contrast, in a co-operative society, sole trader, or partnership, the owners and managers are typically the same individuals or a small group of individuals who are closely involved in the day-to-day operations of the business, and thus, there may be less likelihood of disagreements between management and shareholders.

Maelezo ya Majibu

Maelezo ya Majibu

The disadvantage of the mean as a measure of central tendency is that it can be affected by extreme values, also known as outliers. Outliers are values that are significantly higher or lower than the rest of the data set, and they can skew the mean towards their direction. This means that the mean may not accurately represent the typical or average value of the data. For example, if a data set contains one extremely high value, the mean may be much larger than most of the other values and not represent the typical value of the data set.

Maelezo ya Majibu

Maelezo ya Majibu

Maelezo ya Majibu

Maelezo ya Majibu

The desire to widen the gap between developing countries and the developed world is not an objective of economic planning. Economic planning is the process by which a government or organization sets priorities, makes decisions, and allocates resources to achieve specific economic goals. The objectives of economic planning may vary depending on the country's needs and priorities, but they generally aim to promote economic growth, reduce poverty, increase employment, and improve the standard of living for citizens. However, the desire to widen the gap between developing countries and the developed world is not an objective of economic planning. In fact, economic planning aims to reduce inequalities between countries and promote global economic development. Therefore, of the options given, the desire to widen the gap between developing countries and the developed world is not an objective of economic planning.

Maelezo ya Majibu

Maelezo ya Majibu

Maelezo ya Majibu

The exports of West African countries are mostly composed of raw materials. This includes agricultural products such as cocoa, coffee, and cotton, as well as mineral resources such as oil, gold, and diamonds. These raw materials are often exported to other countries for processing and manufacturing into finished goods.

Maelezo ya Majibu

The answer is "low retail prices." When there are many middlemen in the chain of production, it can lead to increased costs at each stage of the production process, which can ultimately lead to higher retail prices. This is because each middleman will add their own markup to the cost of the product, which can increase the final price that the consumer pays. Additionally, middlemen may engage in hoarding of goods in order to create an artificial scarcity and drive up prices. Therefore, the presence of many middlemen is more likely to lead to high retail prices rather than low ones.

Maelezo ya Majibu

In order to control inflation, the government should "adopt restrictive monetary policy." This means that the government should reduce the amount of money in circulation in the economy, in order to reduce consumer demand and control rising prices. The government can adopt several measures to implement a restrictive monetary policy. One such measure is to increase the reserve requirements for banks, which means banks have to hold more funds in reserve and can lend out less money to consumers. Another measure is to increase the interest rate at which banks borrow from the central bank, which increases the cost of borrowing for consumers, and thereby reduces spending and demand. On the other hand, reducing the cost of borrowing, buying securities in the open market, or discouraging savings are measures that can stimulate economic growth and increase the money supply. These measures are not suitable for controlling inflation because they increase consumer demand and spending, which can lead to higher prices and inflation.

Maelezo ya Majibu

(a) Trade union. A trade union is a voluntary association of workers formed to protect and promote the economic, social and welfare interests of its members and to improve their conditions of work through collective action.

(b) Four functions of trade unions:

• Collective bargaining for better wages. The union negotiates with employers on behalf of all members for higher pay and allowances, giving workers more strength than they would have singly.
• Improving conditions of service. It presses for better working conditions, hours, leave, safety and job security.
• Protecting members. It defends members against unfair dismissal, victimisation and exploitation, and represents them in disputes with employers.
• Providing welfare and education. It offers welfare benefits and training, and educates members on their rights and responsibilities.

(c) Two weapons used by trade unions:

• Strike action. Members withdraw their labour (stop work) until the employer meets their demands.
• Picketing. Members stand at the workplace entrance to discourage others from working or from doing business with the employer during a dispute.

Examination takeaway: separate the functions (what a union does routinely for members) from the weapons (pressure tactics such as strike, picketing, go-slow and work-to-rule used to force concessions).

Maelezo ya Majibu

(a) Meaning of deflation. Deflation is a sustained fall in the general price level of goods and services in an economy over a period of time. It is the opposite of inflation, and it usually means that the purchasing power of money is rising while the volume of money in active circulation, output, or demand is falling.

(b) Three positive effects of deflation.

1. Higher purchasing power of money. As prices fall, the same amount of money buys more goods and services, so real income and the standard of living of people on fixed incomes improve.
2. Encouragement of saving. Because the value of money rises over time, holding money becomes rewarding, so people are encouraged to save.
3. Redistribution in favour of creditors and fixed-income earners. Lenders, pensioners, and salary earners gain because the money they receive later is worth more than when the debt was contracted or the salary was fixed.

(Other acceptable points include cheaper exports if domestic prices fall relative to foreign prices, and reduced cost of living.)

(c) How inflation affects three functions of money. Inflation is a persistent rise in the general price level, so it erodes the value of money and disturbs the jobs money is meant to do.

• Medium of exchange. When inflation is severe, people lose confidence in money and become unwilling to accept it in exchange for goods. Trade may drift back towards barter or towards foreign currency, so money performs the exchange function poorly.
• Store of value. Money kept as savings loses value as prices rise, so it can no longer store purchasing power over time. People switch to holding goods, land, or foreign currency instead.
• Standard of deferred payment. Because the real value of money falls, lenders are repaid in money worth less than they lent, so credit and long-term contracts become risky and lending is discouraged. (Inflation also weakens the unit of account function, since constantly changing prices make money an unreliable measuring rod of value.)

Examination takeaway: tie each effect back to the change in the value of money, since that is the single idea the examiner is testing across all three functions.

Maelezo ya Majibu

(a) Four objectives of a price control policy:

• To protect consumers. A maximum price prevents sellers from charging excessive prices for essential goods, so that low-income people can afford them.
• To protect producers. A minimum price (price floor) guarantees producers, such as farmers, a fair return and protects them from ruinously low prices.
• To check inflation. Fixing prices of key goods helps to hold down the general price level during periods of rising prices.
• To ensure availability and fair distribution of essential goods. Price control aims to keep necessities within reach and to prevent hoarding and profiteering.

(b) Four effects of a maximum price control policy. A maximum (ceiling) price fixed below the equilibrium price makes quantity demanded exceed quantity supplied, and this produces:

• Shortage (excess demand). At the low fixed price consumers want more than producers are willing to supply, so goods become scarce.
• Emergence of a black market. Because of the shortage, some goods are sold secretly above the legal price.
• Hoarding and rationing. Sellers hoard scarce goods, and the government or sellers must ration the limited supply, often causing long queues.
• Fall in quality and smuggling. Producers may cut quality or divert goods to areas or countries where they can be sold at higher prices.

Examination takeaway: remember that a maximum price only "bites" when it is set below equilibrium, which is exactly why it causes shortages, black markets and hoarding.

Maelezo ya Majibu

The graph gives a flat total fixed cost line at \(TFC = \$40\) and a total cost curve TC whose plotted points can be read off as follows:

(a)(i) Variable cost at outputs 2, 4 and 6

Variable cost is what is left of total cost after the fixed cost is removed, \(TVC = TC - TFC\):

(a)(ii) Average total cost at outputs 2 and 3

Average total cost spreads total cost over the units produced, \(ATC = \dfrac{TC}{Q}\):

(a)(iii) Marginal cost at outputs 4 and 6

Marginal cost is the extra cost of producing one more unit, \(MC = \dfrac{\Delta TC}{\Delta Q}\). Here each step is one unit, so it is the rise in TC from the previous output:

(b) Profit or loss when the product sells at \(\$40\) per unit

Profit is total revenue minus total cost, where \(TR = P \times Q\) and \(P = \$40\).

(i) 2 units

The firm makes a loss of \(\$20\), because at such a low output the \(\$40\) fixed cost is spread over too few units.

(ii) 4 units

The firm now makes a profit of \(\$20\). Raising output has turned the loss into a profit because total revenue rises faster than total cost once the fixed cost is shared over more units.

Maelezo ya Majibu

(a) Infant industries. Infant industries are newly established industries that are still young, small and not yet strong or efficient enough to compete on equal terms with older, well-established foreign firms that enjoy economies of scale and experience.

(b) Four reasons for protecting infant industries:

• To allow them to grow. Protection (through tariffs or quotas on rival imports) gives the young industry time to expand, gain experience and become efficient before facing full foreign competition.
• To achieve economies of scale. A protected home market lets the industry increase output and lower its unit costs until it can compete.
• To create and protect employment. Shielding the industry preserves the jobs it provides and allows it to employ more workers.
• To diversify the economy and save foreign exchange. Building local industry reduces dependence on imports and on a few primary exports, and saves the foreign exchange spent on imported manufactures.

(c) Three ways industries can be financed in West Africa:

• Bank loans. Funds obtained from commercial banks and development banks (such as industrial development banks).
• The capital market. Raising long-term funds by issuing shares and debentures to the public.
• Government assistance and personal savings. Government subsidies, grants and loans, together with owners' personal savings and ploughed-back (retained) profits.

Examination takeaway: tie the reasons for protection to the industry being young (it needs time to reach efficient scale), and in (c) name genuine sources of finance, not general activities.

Maelezo ya Majibu

(a) Meaning of protective tariff. A protective tariff is a tax or duty imposed on imported goods mainly to raise their prices so that they become more expensive than locally produced goods. Its chief aim is not revenue but to shield domestic industries from foreign competition.

(b) Four reasons in favour of a protective tariff.

1. Protection of infant industries. Newly established local industries are too weak to compete with large, efficient foreign firms, so the tariff gives them time to grow and become efficient.
2. Protection of employment. By reducing imports and encouraging local production, the tariff helps to preserve and create jobs in domestic industries.
3. Correction of balance of payments deficit. The tariff discourages imports, reduces foreign exchange spending, and so helps to improve an unfavourable balance of payments.
4. Prevention of dumping. It stops foreign producers from selling goods below cost in the home market to destroy local industries.

(Other valid reasons include protection of strategic or defence industries and raising government revenue.)

(c) Two reasons against a protective tariff.

• It raises prices for consumers. By making imports dearer and shielding inefficient local firms, tariffs force consumers to pay higher prices for a narrower range of goods.
• It encourages inefficiency and can provoke retaliation. Protected firms have little incentive to cut costs or improve quality, and trading partners may impose counter-tariffs that reduce the country's own exports.

Maelezo ya Majibu

(a) Disposable income is income after tax: \( \text{Disposable income} = \text{Income} - \text{Tax}, \) where \( \text{Tax} = \text{Tax rate} \times \text{Income} \).

(b) The system used is regressive taxation.

(c) Reasons. Under a regressive tax the tax rate falls as income rises. Here the highest earner (Doctor, \$8,000) pays the lowest rate (10%), while the lowest earner (Civil servant, \$5,000) pays the highest rate (18%). The tax therefore takes a larger proportion of a poor person's income than of a rich person's, which is the defining feature of a regressive tax.

(d) Diagram. Plot income on the horizontal axis and the average tax rate on the vertical axis. A regressive tax curve slopes downward from left to right: as income increases, the tax rate declines (from 18% at \$5,000 down to 10% at \$8,000). This contrasts with a progressive tax, whose curve would slope upward. The downward slope visually shows the burden shifting onto lower income earners.

Maelezo ya Majibu

(a) Balance of payments disequilibrium. Balance of payments disequilibrium is a situation in which a country's total autonomous receipts from abroad are not equal to its total autonomous payments abroad over a period, so that the balance of payments does not balance on its own but shows a persistent surplus or a persistent deficit.

(b) Two types of balance of payments disequilibrium:

• Surplus (favourable) disequilibrium. Total receipts from abroad exceed total payments abroad, so the country earns more foreign exchange than it spends and reserves rise.
• Deficit (unfavourable or adverse) disequilibrium. Total payments abroad exceed total receipts, so the country spends more foreign exchange than it earns, draining its reserves and forcing it to borrow.

(c) Four reasons most West African countries face balance of payments problems:

• Heavy dependence on imports. They import large quantities of manufactured, capital and even food items, so payments abroad are large.
• Reliance on a few primary exports with unstable prices. Export earnings depend on a small number of raw materials whose world prices are low and fluctuate, so receipts are small and unsteady.
• Heavy external debt servicing. Large repayments of principal and interest on foreign loans drain foreign exchange.
• Spending on invisible imports and capital flight. Payments for foreign services (shipping, insurance, technical services) and the movement of capital abroad worsen the deficit.

Examination takeaway: the root of most West African deficits is structural, importing costly manufactures while exporting a few cheap, unstable primary goods; state each reason and show how it widens the gap between payments and receipts.