WAEC SSCE - Economics - 2011

Maelezo ya Majibu

If the current price of an apple is twice that of last year, it means that the price level has increased over time. This suggests that the value of money has decreased, and therefore, it is falling. In other words, the purchasing power of money has declined, and it now takes more money to buy the same amount of goods and services as before.

Maelezo ya Majibu

The natural growth rate of population can be defined as the difference between the birth rate and the death rate in a given population over a certain period of time, usually a year. It represents the rate at which the population is growing due to the excess of births over deaths. For instance, if the birth rate is 20 per 1,000 people per year and the death rate is 10 per 1,000 people per year, the natural growth rate would be 10 per 1,000 people per year. The natural growth rate can be used to estimate future population trends and plan for future needs such as healthcare, education, housing, and employment.

Maelezo ya Majibu

When the price is fixed above the equilibrium, it leads to a situation where the quantity supplied by the producers is more than the quantity demanded by the consumers. This usually happens when the government wants to protect agricultural producers from the market forces of demand and supply. By fixing the price above the equilibrium, the government ensures that the producers get a higher price for their produce than what they would get in a free market. However, this policy can also lead to some negative consequences. It can discourage producers from improving the quality of their produce or from being efficient in their production because they are guaranteed a high price regardless of the quality or efficiency. Also, it can lead to surpluses of unsold goods, which can be wasteful and costly to the government. Overall, fixing the price above the equilibrium is a policy that favours agricultural producers at the expense of consumers, and it is often used as a form of protectionism.

Maelezo ya Majibu

Maelezo ya Majibu

Maelezo ya Majibu

The grouping of the population according to the economic activities people engage in is occupational distribution. This refers to the classification of individuals into various occupational categories based on the type of work they do. It is a way of analyzing and understanding the structure of an economy and its workforce. Some common occupational categories include agriculture, manufacturing, services, and professional occupations such as doctors, lawyers, and engineers. Occupational distribution provides insights into the level of development of an economy, the skills of its workforce, and the potential for economic growth.

Maelezo ya Majibu

Human wants are unlimited. This means that people have unlimited desires and needs for goods and services. As one want is satisfied, another arises, leading to an endless cycle of wants. There is no limit to the number of wants that humans can have, and this is because as society advances and technology improves, new wants arise. Therefore, no matter how much is produced, human wants will never be fully satisfied.

Maelezo ya Majibu

The unemployment rate is the percentage of the labor force that is unemployed and actively seeking employment. In this case, the labor force is 2.5 million and the number of employed people is 2 million. Therefore, the number of unemployed people is 2.5 million - 2 million = 0.5 million. To calculate the unemployment rate, we divide the number of unemployed people by the labor force and multiply by 100 to express the result as a percentage. So, the unemployment rate is (0.5 million / 2.5 million) * 100 = 20%. Therefore, the correct option is: 20%.

Maelezo ya Majibu

A vertical supply curve represents a situation where the quantity supplied does not respond to changes in price. This means that the quantity supplied remains constant regardless of changes in price. The elasticity coefficient is a measure of how responsive the quantity supplied or demanded is to changes in price. In the case of a vertical supply curve, the elasticity coefficient is zero because there is no change in quantity supplied even when there is a change in price. Therefore, the correct option is 0.0.

Maelezo ya Majibu

The increase in population growth in big cities is referred to as urbanization. Urbanization is the process of the migration of people from rural areas to urban areas, resulting in the growth and expansion of cities. This process is usually driven by economic opportunities, social factors, and modernization. As people move to cities, the population increases, leading to the development of infrastructure, housing, and other amenities to support the growing population. Urbanization can have both positive and negative impacts on society, such as increased economic opportunities and improved access to services, as well as overcrowding, pollution, and social problems.

Maelezo ya Majibu

Maelezo ya Majibu

A market structure where profit is maximized when marginal revenue, marginal cost and price are equal is known as perfect competition. In perfect competition, there are many buyers and sellers, and no one has the power to influence prices. As a result, firms in perfect competition are price takers and must accept the market price. In this type of market, firms can only make profit by producing at the point where their marginal revenue equals their marginal cost, and where the market price is equal to that point.

Maelezo ya Majibu

The type of production that involves the tapping and harnessing of natural resources is called primary production. This refers to the economic sector that involves the extraction and collection of natural resources from the earth or sea, such as agriculture, mining, forestry, and fishing. The primary sector is considered the foundation of any economy, as it provides the raw materials necessary for other industries to manufacture finished products. Examples of primary production activities include farming crops and livestock, drilling for oil, mining minerals and ores, and harvesting timber.

Maelezo ya Majibu

In the short run, at least one factor of production is fixed, which means that it cannot be changed. Therefore, fixed cost does not change in the short run. Fixed costs are expenses that do not vary with changes in the level of production or output, such as rent, salaries, and property taxes.

Maelezo ya Majibu

A normal demand curve slopes downward from left to right. This means that as the price of a product or service decreases, the quantity demanded of that product or service increases, and vice versa. This is the typical relationship between price and demand in a competitive market, where consumers are willing to pay less for a product or service as the supply of that product or service increases.

Maelezo ya Majibu

A tax is regressive if the rate of tax decreases as income increases. This means that people with lower incomes pay a higher percentage of their income in taxes compared to people with higher incomes. This can lead to a greater burden on low-income households and may exacerbate income inequality.

Maelezo ya Majibu

Deposits held in a commercial bank are part of the money supply. This is because when customers deposit money into their accounts, the bank is able to use that money to make loans to other customers or invest in various financial instruments. As a result, these deposits effectively become a part of the circulating money supply in the economy, and can be used for transactions such as purchases of goods and services, payment of bills, and other financial transactions.

Maelezo ya Majibu

Maelezo ya Majibu

A firm's main aim is to maximize profits. This means that the firm's goal is to earn as much revenue as possible while minimizing costs. By doing so, the firm can generate profits, which can then be reinvested into the business or distributed to shareholders. While there may be other objectives that a firm may pursue, such as increasing market share or satisfying the ambitions of its managers, ultimately the firm's success is measured by its ability to generate profits.

Maelezo ya Majibu

When total utility is constant, it means that the additional satisfaction or usefulness gained from consuming one more unit of a good (marginal utility) is equal to zero. This is because the total utility is the sum of the marginal utilities of all the units consumed. Therefore, if total utility is not changing, it implies that the marginal utility is neither increasing nor decreasing but has reached a point of equilibrium where the additional satisfaction gained from consuming one more unit is zero.

Maelezo ya Majibu

A rational consumer is one who spends his income to maximize satisfaction. This means that the consumer will make choices that will provide the greatest level of satisfaction, given their limited income and the prices of goods and services. A rational consumer will consider the marginal utility (the additional satisfaction gained from consuming an extra unit) and the price of each good or service before making a purchasing decision. In contrast to what some people believe, being a rational consumer does not mean that a person behaves in a particular way all the time, or that they know the price of all goods and buy the cheapest, or that they are not influenced by advertisement.

Maelezo ya Majibu

The production possibility curve (PPC) indicates that as more of one good is produced, less of the other goods is produced. This is because resources such as labor, capital, and raw materials are limited, and using them to produce more of one good means there are fewer resources available to produce other goods. The PPC shows the tradeoff between producing one good versus another, and the opportunity cost of producing more of one good is the amount of the other good that must be given up. Therefore, the PPC is a graphical representation of the concept of scarcity and the need to make choices about how to allocate limited resources.

Maelezo ya Majibu

A firm has the power to make super normal profits both in the short run and long run in a monopoly market. In a monopoly market, there is only one supplier of a product or service, which gives the firm complete control over the price and quantity supplied. The firm can set a price above the marginal cost of production, allowing it to earn super normal profits. In the long run, barriers to entry prevent other firms from entering the market, allowing the monopoly firm to continue earning super normal profits. Therefore, the correct answer is Monopoly.

Maelezo ya Majibu

If there are no barriers to entering a market, it means that anyone can become a buyer or a seller. In other words, there are no restrictions or obstacles preventing new firms or individuals from entering the market to compete with existing sellers. This encourages competition, which can lead to lower prices, better quality products, and greater innovation. It also means that consumers have more choices, and sellers must work harder to differentiate themselves from their competitors. Therefore, a lack of barriers to entry can result in a more efficient and dynamic market.

Maelezo ya Majibu

A firm will shut down in the long run if its earning is less than normal profit. In economics, normal profit refers to the minimum level of profit necessary to keep a firm in business in the long run. This includes the opportunity cost of the entrepreneur's time and capital investment, as well as any other costs necessary to maintain the business. If a firm's earning is less than this level of profit in the long run, it is not covering all of its costs and will eventually go out of business. Therefore, a firm will shut down if its earning is less than normal profit, as it cannot sustain its operations in the long run.

Maelezo ya Majibu

The cross elasticity of demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. In this case, the 20% rise in the price of Whiskey leads to a 30% increase in quantity demanded of Schnapps. This means that the two goods are substitutes, as the increase in the price of Whiskey led consumers to switch to the relatively cheaper alternative, Schnapps. The formula for cross elasticity of demand is the percentage change in quantity demanded of good Y divided by the percentage change in the price of good X: Cross elasticity of demand = (% change in quantity demanded of Y) / (% change in price of X) Using the values given in the question, we can calculate the cross elasticity of demand as follows: Cross elasticity of demand = (30% / 20%) = 1.5 Therefore, the cross elasticity of demand is 1.5.

Maelezo ya Majibu

A rise in government expenditure can lead to higher inflation. This is because an increase in government expenditure means that there is more money available for people to spend, which can lead to a higher demand for goods and services. When demand is high, prices tend to go up, which leads to inflation. Additionally, government expenditure can increase the money supply, which can also contribute to inflation.

Maelezo ya Majibu

Privatization is the transfer of ownership and control of public enterprises to private individuals or entities. The effect of privatization on the industrial sector of a country is that it ensures efficiency. This is because private individuals or entities operate for profit, and they are therefore incentivized to minimize costs and maximize profits. They are more likely to use resources efficiently and effectively, leading to increased productivity and output. Additionally, private enterprises are more likely to introduce new technologies and innovations, leading to increased efficiency in production. Overall, privatization can lead to a more efficient and productive industrial sector in a country.

Maelezo ya Majibu

When a country's net income from abroad is added to its total output, the result is the Gross National Product (GNP). GNP is a measure of the total economic output of a country's citizens, including its production and income from foreign investments. It is calculated by adding the value of all goods and services produced by a country's residents, regardless of their location, and adding any income earned by residents from foreign sources. Essentially, GNP is a measure of the total economic activity of a country's citizens, regardless of where that activity takes place.

Maelezo ya Majibu

The correct answer is: real cost is the alternative forgone while the money cost is the actual amount paid for buying the item. Money cost refers to the amount of money that is spent on a good or service. Real cost, on the other hand, refers to the alternative that must be given up in order to obtain that good or service. This alternative is often referred to as the opportunity cost. So, the real cost of an item is not just the amount of money that was spent on it, but also the value of the next best alternative that was given up to obtain it. For example, if you choose to buy a new phone for $500, the money cost is $500. However, the real cost also includes the opportunity cost of what else you could have done with that $500, such as investing it, saving it, or buying a different item.

Maelezo ya Majibu

The statement that is not true about land is: "land is mobile." This is because land is a fixed resource and cannot be moved from one place to another. It is the other factors of production, such as labor and capital, that can be mobile.

Maelezo ya Majibu

Cost push inflation is caused by a rise in the cost of production. When the cost of production increases, the firms try to maintain their profit margin by increasing the price of goods and services. As a result, the general price level increases, leading to inflation. For example, if the cost of raw materials or labour increases, the firms will have to spend more money to produce the same amount of goods. To maintain their profit margin, they will increase the price of the goods, leading to an increase in the general price level. This is known as cost-push inflation.

Maelezo ya Majibu

Maelezo ya Majibu

Palm oil and palm kernel have a joint supply. This means that the production of one leads to the production of the other. Palm oil is extracted from the fleshy part of the palm fruit, while palm kernel oil is extracted from the kernel or seed inside the fruit. Therefore, the production of palm oil automatically leads to the production of palm kernel oil as a by-product. They are both widely used in various industries, such as food, cosmetics, and biofuel.

Maelezo ya Majibu

When governments want to discourage consumption of a certain good, they tax goods whose demand is price inelastic. This is because when the demand for a good is price inelastic, consumers are not very responsive to changes in price and will continue to buy the good even if the price increases due to taxes. By taxing goods with price inelastic demand, the government can increase the price of the good and reduce its consumption, without causing a significant decrease in government revenue. In contrast, if a good has price elastic demand, consumers are very sensitive to changes in price, and even small increases in price may cause a significant decrease in demand, resulting in a decrease in government revenue.

Maelezo ya Majibu

Maelezo ya Majibu

A consumer purchasing a commodity X will maximize his satisfaction when the price of commodity X (Px) is equal to the marginal utility of commodity X (MUx). In other words, the consumer will buy more units of commodity X until the point where the additional satisfaction gained (MUx) is equal to the price paid for each unit (Px). So the correct option is "Px = MUx".

Maelezo ya Majibu

One profitable form of business undertaken by commercial banks is lending money to borrowers. Commercial banks earn profits by charging interest on loans that they extend to borrowers. These loans can be in the form of personal loans, mortgages, or business loans. Banks carefully evaluate the creditworthiness of borrowers and set interest rates accordingly. As long as the interest earned from the loans is higher than the cost of obtaining funds to lend, banks can earn a profit. Therefore, lending money is one of the key functions of commercial banks.

Maelezo ya Majibu

National income is used to measure a country's economic growth. It refers to the total value of goods and services produced within a country's borders over a specified period, usually a year. National income includes income earned by both individuals and firms and is a useful tool for assessing a country's economic performance over time. It is often used in combination with other indicators such as GDP, inflation, and unemployment to provide a comprehensive picture of a country's economic health.

Maelezo ya Majibu

The resources used in production are called factors of production. These are the resources required to produce goods and services. The three main factors of production are land, labor, and capital. Land refers to natural resources such as land, water, and minerals, while labor refers to the work done by people to produce goods and services. Capital refers to the tools, equipment, and other resources used in the production process. The combination of these factors of production determines the quantity and quality of the goods and services produced.

Maelezo ya Majibu

The coefficient of income elasticity of demand for inferior goods is negative. This is because when consumers' income increases, they tend to buy less of the inferior goods and switch to buying better alternatives, causing the demand for inferior goods to decrease. The negative sign indicates the inverse relationship between income and demand for inferior goods.

Maelezo ya Majibu

The demand for money to take advantage of changes in bond prices is known as the speculative motive. This refers to the desire to hold money to take advantage of investment opportunities that may arise in the future. In this case, investors may want to purchase bonds when prices are low and then sell them when prices increase in the future. The speculative motive is one of the three motives for holding money, alongside the transaction motive (to facilitate daily transactions) and the precautionary motive (to provide a buffer against unexpected events).

Maelezo ya Majibu

An arrangement of data in rows and columns is referred to as a "table". It is a way of presenting data in a structured and organized manner that allows for easy comparison and analysis. Tables are commonly used in various fields, including statistics, finance, and science, to display and summarize large amounts of data. The data is organized in rows, which run horizontally, and columns, which run vertically. Each row represents a single item or observation, while each column represents a specific variable or category. Tables are useful because they allow for quick and efficient comparisons of data, as well as the ability to easily sort and filter the data to extract specific information.

Maelezo ya Majibu

The following options describe features of subsistence agriculture, except for one. Subsistence agriculture is a type of farming where farmers grow crops to feed themselves and their families, rather than for commercial purposes. - Little capital: Subsistence agriculture is typically characterized by farmers who have limited access to capital and rely on simple and traditional farming methods. - Processing of raw materials: Subsistence farmers often process their raw materials (e.g., grains) into food products for their own consumption. - Small allotments of land: In subsistence agriculture, farmers often work on small plots of land that are just large enough to provide for their family's needs. Therefore, the option that does not describe features of subsistence agriculture is: - Use of crude oil: Subsistence agriculture does not typically involve the use of crude oil, as it is not essential to the farming process and may not be readily available or affordable for subsistence farmers.

Maelezo ya Majibu

(a) International trade is the exchange of goods and services across national boundaries, that is, trade between two or more countries. It comprises imports (goods and services bought from abroad), exports (goods and services sold abroad) and entrepot trade (re-export of imported goods).

(b) Four advantages of international trade:

• Enables consumption beyond domestic production: Countries obtain goods they cannot produce at all or cannot produce efficiently, widening the range of goods available to consumers.
• Promotes specialisation and efficient use of resources: Each country specialises in goods in which it has a comparative advantage, raising world output and lowering costs.
• Source of foreign exchange and revenue: Exports earn foreign exchange used to import capital goods, and import/export duties yield government revenue.
• Widens the market and transfers technology: A larger market allows economies of scale, and contact with other countries spreads skills, ideas and modern technology, fostering development and international understanding.

Maelezo ya Majibu

(a) Price elasticity of supply between December 2004 and January 2007

The coefficient is \( E_s = \dfrac{\%\,\Delta Q_s}{\%\,\Delta P} \). Between the two periods price rose from \$30 to \$40 and quantity supplied rose from 100 to 150 bags.

\[ \%\,\Delta Q_s = \frac{150-100}{100}\times 100 = 50\% \]

\[ \%\,\Delta P = \frac{40-30}{30}\times 100 = 33.33\% \]

\[ E_s = \frac{50}{33.33} = 1.5 \]

(b) Yes, the supply of rice is elastic, because \( E_s = 1.5 > 1 \): the percentage change in quantity supplied (50%) is greater than the percentage change in price (33.33%), so quantity supplied is highly responsive to price.

(c) Three reasons that may cause an increase in the supply of rice:

• Improvement in technology (better machinery, high-yield seeds) raising output.
• Favourable weather or good climatic conditions during the growing season.
• A fall in the cost of production or inputs, or a government subsidy to farmers.

Maelezo ya Majibu

(a) Difference between shares and debentures:

(b) Four problems firms encounter in raising capital:

• Poorly developed capital market: A weak or narrow stock exchange makes it hard to float shares and stocks.
• Low level of savings and incomes: Widespread poverty means few people can buy shares or lend to firms.
• Lack of collateral security: Small firms cannot provide the security banks require for loans.
• High interest rates and lender caution: Costly borrowing and the reluctance of banks to lend to risky ventures limit access to funds. (Ignorance of company procedures and lack of confidence in some firms also discourage investors.)

Maelezo ya Majibu

(a) Types of co-operative societies:

• Consumers' co-operatives: Associations formed by consumers who pool funds to buy goods in bulk and sell them to members (and the public) at fair prices, cutting out the middleman. Any surplus is shared among members as dividend according to their purchases.
• Producers' co-operatives: Associations of producers, such as farmers or craftsmen, who combine to buy inputs cheaply, process, store and market their output jointly, and obtain better prices and services than they could individually.
• Thrift and credit co-operatives: Associations whose members save regularly to form a common fund from which members can borrow at low interest for productive or personal needs; they encourage saving and provide affordable credit.

(b) Two problems faced by co-operative societies in West Africa:

• Shortage of capital: Members are often poor, so contributions are small and the societies lack funds to expand.
• Poor/dishonest management and lack of trained personnel: Weak record-keeping, mismanagement and sometimes embezzlement by officials weaken the societies. (Illiteracy of members and inadequate government support are further problems.)

Maelezo ya Majibu

(a) Three objectives of the African Development Bank (AfDB):

• To promote economic development of member countries by financing investment projects and programmes, individually and collectively.
• To mobilise and provide resources (loans and equity) for the development of agriculture, industry and infrastructure in Africa.
• To provide technical assistance for the preparation, financing and execution of development projects, and to promote regional economic co-operation and integration among African states.

(b) Two achievements of the African Development Bank:

• It has financed numerous development projects across member states, including roads, power, water, agriculture and industry, thereby improving infrastructure and productive capacity.
• It has provided loans, grants and technical assistance that have supported poverty-reduction and regional integration programmes and helped member countries attract further development finance.

Maelezo ya Majibu

(a) Grouping of borrowers by sector of production. The primary sector extracts raw materials from nature; the secondary sector processes them into finished goods; the tertiary sector renders services.

(b) Loan to each sector as a ratio of the total loan (total = \(\$45,000\)):

• Primary : \( \dfrac{18000}{45000} = \dfrac{2}{5} \)
• Secondary : \( \dfrac{4000}{45000} = \dfrac{4}{45} \)
• Tertiary : \( \dfrac{23000}{45000} = \dfrac{23}{45} \)

Combined, the ratio Primary : Secondary : Tertiary \(= 18 : 4 : 23\).

(c) Bar chart. On a graph sheet, place the three sectors on the horizontal axis and the loan amount (in $) on the vertical axis, choosing a scale such as \(2\text{ cm} = \$5,000\). Draw three separate bars of equal width but unequal height: Primary up to 18,000, Secondary up to 4,000 and Tertiary up to 23,000. Title the chart and label both axes clearly.

Maelezo ya Majibu

(a) Competitive (substitute) demand exists where two or more goods satisfy the same want, so that a rise in the demand for one reduces the demand for the other; the goods compete for the consumer's income. Examples: butter and margarine, tea and coffee, or different brands of soap.

Complementary (joint) demand exists where two goods are demanded together to satisfy a single want, so that a rise in the demand for one raises the demand for the other. Examples: cars and petrol, bread and butter, or pens and ink.

(b) Effect of a fall in the import duty on cars on the price and consumption of petrol. Cars and petrol are in complementary (joint) demand. A reduction in the import duty on cars lowers the cost of importing cars, so the supply of cars increases and the price of cars falls. At the lower price, more cars are bought and used.

Because petrol is used jointly with cars, the increased use of cars raises the demand for petrol at every price: the demand curve for petrol shifts to the right, from \(D\) to \(D_1\). Given the supply curve of petrol, this shift raises the equilibrium price of petrol and increases the quantity of petrol consumed. Thus a fall in the import duty on cars leads, through complementarity, to a higher price and higher consumption of petrol.

Two diagrams are used: (i) the car market, where the supply curve shifts right and the car price falls; (ii) the petrol market, where the demand curve shifts right (\(D\) to \(D_1\)) so that both price and quantity of petrol rise.

Maelezo ya Majibu

(a) A centrally planned economy (also called a command or socialist economy) is an economic system in which the means of production are owned and controlled by the state, and a central planning authority takes the major economic decisions of what to produce, how to produce and for whom to produce. Prices, output and the allocation of resources are directed by the government rather than by the free interplay of demand and supply.

(b) Four features of a capitalist economy:

• Private ownership of property: Individuals and firms own and control the means of production such as land and capital.
• Profit motive: Production and investment are driven by the desire of private owners to make maximum profit.
• Freedom of enterprise and choice: Producers are free to produce any lawful good, and consumers are free to buy what they can afford; consumer sovereignty guides production.
• Price mechanism (market forces): Prices are determined by the free interplay of demand and supply, and they allocate resources with minimal government interference. (Competition among many buyers and sellers is a further feature.)

Maelezo ya Majibu

(a) The demographic transition theory explains the pattern of population change that a country passes through as it develops economically, describing how birth rates and death rates change over time and how this affects the rate of population growth. It states that societies move from a stage of high birth and high death rates, through a stage of falling death rates with still-high birth rates, to a stage of low birth and low death rates.

(b) The three stages:

1. First (high stationary) stage: Both the birth rate and the death rate are high, so they roughly cancel out and the population grows slowly. This is typical of pre-industrial societies with poor medical care, famine and disease.
2. Second (early/late expanding) stage: The death rate falls sharply because of improved medical services, better nutrition, clean water and sanitation, while the birth rate remains high. The wide gap between them causes a rapid increase (population explosion). Many developing countries are in this stage.
3. Third (low stationary) stage: The birth rate also falls, through family planning, urbanisation, education and rising living standards, until it is low and close to the low death rate. Population growth is again slow and the population becomes fairly stable, as in developed countries.

Maelezo ya Majibu

(a) Mobility of labour is the ease with which workers can move from one job, occupation or geographical location to another. It has two forms: geographical mobility (movement from one place or region to another to work) and occupational mobility (movement from one occupation or grade of job to another).

(b) Four factors influencing the supply of labour:

• Size of the population: A larger population, other things being equal, provides a larger pool from which the labour force is drawn.
• Age structure of the population: The proportion of people within the working age bracket determines how many are available to work; a young or ageing population reduces the working population.
• Wage rate: Higher wages generally attract more people into the labour market and encourage longer hours, increasing supply (up to the point of a backward-bending supply).
• Hours of work, working conditions and level of education/training: The number of hours per worker, attractiveness of conditions, and the skills available determine the effective quantity and quality of labour supplied. (Social factors such as the participation of women and cultural attitudes to work also count.)

Maelezo ya Majibu

Five reasons why small-scale firms are common in West Africa:

• Shortage of capital: Most entrepreneurs lack the large funds needed to set up big firms, and access to bank credit is limited, so they start small.
• Small size of the market: Low per-capita incomes and poor purchasing power limit demand, making large-scale production unprofitable.
• Nature of the product or service: Many activities (tailoring, hairdressing, petty trading, local crafts, personal services) are best carried out on a small scale close to the customer.
• Limited managerial and technical skills: A scarcity of trained managers and skilled labour makes it difficult to run large, complex organisations.
• Desire for independence and ease of formation: Individuals prefer to be their own bosses, and small firms are easy and cheap to establish with few legal formalities. (Poor infrastructure and limited access to modern technology also discourage large-scale operation.)

Maelezo ya Majibu

(a) Economic development is the process of sustained increase in a country's real output (real national income and per-capita income) accompanied by improvements in the structure of the economy and in the welfare of the people, such as better education, health, employment, income distribution and standard of living. It is growth plus qualitative and structural change, not merely a rise in output.

(b) Five features of a development bank:

• Provision of long- and medium-term finance: It lends capital for long periods to industry, agriculture and commerce, unlike commercial banks which lend mainly short-term.
• Development-oriented lending: It finances priority projects that promote economic development rather than aiming purely at profit.
• Provision of technical and managerial advice: It gives advisory and feasibility services to the projects it finances.
• Equity participation: It may buy shares in the enterprises it assists, sharing in ownership and risk.
• It does not accept ordinary demand deposits from the public and does not run current accounts like commercial banks; it is capitalised mainly by government and other institutions. (It also helps mobilise domestic and foreign capital for development.)