WAEC SSCE - Economics - 2016

Maelezo ya Majibu

Maelezo ya Majibu

Double counting occurs in international income accounting when intermediate goods are counted with the final goods. Intermediate goods are products that are used as inputs in the production of other goods, while final goods are products that are sold to the end consumer. When calculating a country's gross domestic product (GDP), only the value of final goods and services should be included, as the value of intermediate goods has already been accounted for in the production of the final goods. If intermediate goods are counted with the final goods, then their value is being counted twice, which will lead to an overestimation of the country's GDP. For example, if a car manufacturer buys tires from another company to use in the production of their cars, the value of the tires is already included in the price of the final cars. If the value of the tires is also included in the GDP calculation, it would be double-counted. Therefore, to avoid double counting, only the value of final goods and services should be included in the calculation of a country's GDP.

Maelezo ya Majibu

Human wants are insatiable because they are unlimited while means are scarce. This means that people have infinite desires and needs, but there are only limited resources available to fulfill those desires. As a result, people will always want more than what they can have, which makes their wants insatiable. No matter how much people have, they will always want more because their desires are unlimited. This is why the pursuit of happiness is a continuous process for humans.

Maelezo ya Majibu

Maelezo ya Majibu

A price floor is a government-imposed minimum price that must be charged for a particular good or service. When a price floor is set above the equilibrium price, it creates a situation where suppliers are willing to supply more of the product than consumers are willing to buy, leading to an excess supply or surplus. This means that there will be a lot of unsold goods that will pile up, as suppliers cannot sell them due to the high price floor. Furthermore, price floors can create inefficiencies in the market by discouraging competition and reducing economic welfare. In some cases, suppliers may hoard goods in order to try and wait for prices to increase or may resort to the parallel market to sell goods at a lower price, undermining the purpose of the price floor.

Maelezo ya Majibu

Cost push inflation is likely to arise when there is a rise in the cost of production. This can occur due to various reasons such as an increase in the cost of labor, raw materials, or energy. When the production cost increases, firms are likely to increase the prices of their goods and services in order to maintain their profit margins. As a result, the general price level of goods and services in the economy increases, leading to inflation. This is because firms are now producing at a higher cost, and they pass on this higher cost to consumers in the form of higher prices. Therefore, cost push inflation occurs when an increase in the cost of production leads to an increase in the general price level of goods and services in the economy.

Maelezo ya Majibu

Maelezo ya Majibu

The provision of subsidies on equipment is likely to encourage capital-intensive farming. This is because capital-intensive farming requires a significant amount of investment in equipment such as tractors, harvesters, irrigation systems, and other machinery to increase efficiency and productivity. Subsidies can help reduce the cost of purchasing this equipment, making it more affordable for farmers to adopt capital-intensive farming practices. Communal systems of land ownership, policies that encourage rural-urban migration, and restrictive lending policies by banks are unlikely to encourage capital-intensive farming. Communal systems of land ownership may not provide individual farmers with the necessary incentive to invest in expensive equipment, as land may be owned collectively and not by individual farmers. Policies that encourage rural-urban migration may lead to a decline in the number of people engaged in agriculture, which could reduce the overall level of investment in farming equipment. Restrictive lending policies by banks may limit the ability of farmers to access the necessary capital to invest in equipment, thus making capital-intensive farming less attractive.

Maelezo ya Majibu

Maelezo ya Majibu

Maelezo ya Majibu

Maelezo ya Majibu

Maelezo ya Majibu

Maelezo ya Majibu

An entrepreneur is encouraged to adopt division of labor in production because it leads to increased output and lower cost of production. Division of labor involves breaking down the production process into small specialized tasks that are carried out by different workers. Each worker becomes an expert in their specific task, which leads to increased efficiency and productivity. This, in turn, reduces the cost of production as the entrepreneur can produce more goods using the same amount of resources. Additionally, the increased output resulting from division of labor allows the entrepreneur to sell more goods, which can lead to higher profits.

Maelezo ya Majibu

Maelezo ya Majibu

The necessary condition for a firm to be in equilibrium is that marginal revenue is equal to marginal cost. Marginal revenue is the additional revenue a firm receives from selling one more unit of output, while marginal cost is the additional cost of producing one more unit of output. For a firm to maximize its profit, it must produce the quantity of output where the marginal revenue equals the marginal cost. If marginal revenue is greater than marginal cost, the firm can increase its profit by producing more output. If marginal revenue is less than marginal cost, the firm can increase its profit by producing less output. Therefore, the equilibrium point is where marginal revenue equals marginal cost, and this is the level of output that the firm should produce to maximize its profit. In other words, a firm is in equilibrium when it is producing the quantity of output where the additional revenue generated from selling one more unit (marginal revenue) is exactly equal to the additional cost of producing that unit (marginal cost).

Maelezo ya Majibu

If a product has inelastic demand, it means that consumers will continue to buy the product even if its price increases. Therefore, an increase in price will lead to an increase in total revenue for the firm. This is because the increase in price will offset the decrease in the quantity demanded, resulting in a net gain in revenue. In other words, the increase in price will more than compensate for the decrease in quantity demanded, resulting in a higher total revenue for the firm. Therefore, the answer is that total revenue will increase when the price of a product with inelastic demand increases.

Maelezo ya Majibu

The item that is not included in the measurement of the national income using the income approach is government purchases. The income approach measures national income by summing up all the income generated in an economy, including wages and salaries, interest, and dividends. Government purchases, on the other hand, are part of government spending and are not considered as income generated by individuals or businesses in the economy. Therefore, government purchases are not included in the measurement of national income using the income approach.

Maelezo ya Majibu

Indigenization policy is a measure aimed at reducing foreign economic domination in a country by transferring control of certain industries or businesses from foreign ownership to local ownership. The policy is designed to promote local participation and control in key economic sectors and address the economic imbalance that may exist between foreign and domestic interests. By empowering local businesses and entrepreneurs to take on a greater role in the country's economy, indigenization policies aim to promote greater economic growth, stability, and development. Therefore, the indigenization policy seeks to reduce foreign economic domination by giving the locals more control and ownership over certain industries or businesses, thereby promoting local economic growth and development.

Maelezo ya Majibu

A balance of payment surplus means that a country has earned more money from its exports than it has spent on imports. In other words, the receipts from exports are greater than the payments for imports. This indicates that the country is exporting more goods and services than it is importing, which can have positive effects on the economy. A surplus in the balance of payments means that there is a net inflow of foreign currency into the country, which can be used to pay off debts or invest in domestic industries. This can lead to a stronger currency, lower inflation, and increased economic growth.

Maelezo ya Majibu

Maelezo ya Majibu

Maelezo ya Majibu

The type of unemployment that occurs as a result of physical or mental disability of labour is known as residual unemployment. Residual unemployment is the unemployment that remains even when the economy is operating at full employment. This type of unemployment can be caused by various factors such as lack of skills, discrimination, and disabilities. When a person has a physical or mental disability, they may be unable to work or may face significant barriers in finding employment. This can result in residual unemployment as they are unable to participate in the labor market even when there are job opportunities available. Residual unemployment can be particularly challenging to address as it often requires targeted support and interventions to help individuals overcome the barriers they face in finding and maintaining employment.

Maelezo ya Majibu

One of the physical measures that can be used to reduce the volume of imports is the use of foreign exchange control. Foreign exchange controls are measures that a government can take to regulate the flow of foreign currency into and out of a country. By implementing foreign exchange controls, a government can limit the amount of foreign currency that can be used to purchase imports, which in turn can reduce the volume of imports. (reduction of personnel income tax) is not a physical measure that can be used to reduce the volume of imports because it is a fiscal measure that affects the disposable income of individuals, rather than a physical measure that directly impacts the flow of goods and services. (removal of imports duties) and (liberalization of credit for importers) are measures that can actually increase the volume of imports, rather than reduce it.

Maelezo ya Majibu

In a partnership, the conduct of members is guided by the articles of partnership. Articles of partnership are a legal document that outlines the rights, responsibilities, and obligations of all partners involved in a partnership. This document covers various aspects such as the purpose of the partnership, capital contribution, profit sharing ratio, management, decision-making, and dissolution of the partnership. It is usually created at the formation of the partnership and is agreed upon by all partners. The articles of partnership serve as a guideline for the conduct of members in the partnership, ensuring that everyone is aware of their roles and responsibilities.

Maelezo ya Majibu

Gross Domestic Product (GDP) and Gross National Product (GNP) are both measures of the economic activity of a country, but they differ in how they are calculated. GDP is the total value of all goods and services produced within a country's borders in a given period, typically a year. It includes all final goods and services produced by individuals, businesses, and the government, but excludes income earned by foreign nationals and foreign-owned businesses within the country. On the other hand, GNP measures the total income earned by a country's citizens and businesses, regardless of their location, in a given period, typically a year. GNP includes income earned by citizens and businesses both within and outside of the country's borders. To calculate GNP, GDP is adjusted by adding net factor income from abroad, which includes income earned by domestic businesses and citizens abroad and subtracting income earned by foreign nationals and foreign-owned businesses within the country. In summary, GDP measures the total economic output within a country's borders, while GNP measures the total income earned by a country's citizens and businesses, regardless of their location.

Maelezo ya Majibu

Indirect taxes are generally regressive. This means that they tend to place a higher burden on low-income individuals as a percentage of their income than on high-income individuals. This is because indirect taxes, such as sales taxes or value-added taxes, are typically the same rate for everyone regardless of their income level. As a result, low-income individuals end up paying a larger proportion of their income in taxes than high-income individuals. In contrast, progressive taxes, such as income taxes, take a larger percentage of income from high-income individuals than from low-income individuals. Equitable taxes are fair and just, and proportionate taxes are levied at a consistent rate regardless of income.

Maelezo ya Majibu

Maelezo ya Majibu

A banknote is said to be a legal tender because it is backed by law. This means that it is accepted by law as a means of payment for goods and services. Legal tender is a form of payment that must be accepted by law for the settlement of debts, taxes, and other financial obligations. Therefore, a banknote can be used as a means of exchange in the economy because it is backed by the law, and it carries the full faith and credit of the government. The legal tender status of a banknote also ensures its acceptability and its value as a medium of exchange in the economy.

Maelezo ya Majibu

The option that describes a situation where a number of countries agree to remove all trade barriers among themselves and charge a common tariff against non-member countries is called a "customs union." A customs union is a group of countries that agree to remove trade barriers such as tariffs, quotas, and other restrictions on goods and services traded between themselves. In addition, they establish a common external tariff, which means they all charge the same tariff on goods imported from countries outside the union. This allows the member countries to promote trade among themselves while protecting their economies from external competition. Therefore, in a customs union, members eliminate trade barriers between themselves while imposing a common external tariff on non-members.

Maelezo ya Majibu

In a socialist economy, the prices of commodities are typically determined by the central planning authority. This authority sets prices for goods and services based on various factors such as production costs, the needs of the society, and the available resources. The aim is to ensure that prices are fair and affordable for all, while also maintaining the economic stability of the country. Unlike a market economy, where prices are determined by the forces of supply and demand, in a socialist economy, prices are set according to the priorities and goals of the government.

Maelezo ya Majibu

The bulldozer for clearing farm land cannot be classified as land in economics. Land, in economics, refers to the natural resources that are not created by human efforts. It includes the surface of the earth, the minerals and other resources beneath the surface, the water bodies, and the air. The bulldozer is a human-made machine used for clearing land and is not a natural resource. However, it can be classified as a capital resource, which is one of the factors of production. Capital resources are man-made goods that are used to produce other goods and services. The other options mentioned in the question can be classified as land in economics. The bauxite deposit, the lake, and the grazing field are all natural resources that are part of the earth's surface and can be used for economic purposes. The bauxite deposit can be mined for the production of aluminum, the lake can be used for irrigation, and the grazing field can be used for cattle farming.

Maelezo ya Majibu

Maelezo ya Majibu

Maelezo ya Majibu

Instituting price control can hinder efficient distribution of goods in West Africa. Price control is when the government sets a maximum price that can be charged for a product. While this may seem like a good way to protect consumers from high prices, it can have negative effects on the distribution of goods. Firstly, if the maximum price is set below the market price, producers will have less incentive to produce and supply the goods, leading to a shortage of goods in the market. Secondly, if the maximum price is set too high, it may create a surplus of goods that cannot be sold at the regulated price, leading to waste and inefficiency. Finally, price control can lead to corruption and the creation of black markets, where goods are sold at higher prices, defeating the purpose of price control in the first place. Therefore, instituting price control can hinder efficient distribution of goods in West Africa, and other measures such as improving road networks, provision of adequate storage facilities, and formation of producers' co-operative societies can be more effective in improving the distribution of goods.

Maelezo ya Majibu

Maelezo ya Majibu

Maelezo ya Majibu

The principle of comparative cost advantage was propounded by David Ricardo, an English economist who lived in the 19th century. The principle of comparative cost advantage states that countries can benefit from specializing in the production of goods and services in which they have a lower opportunity cost, and then trading with other countries. Opportunity cost is the cost of giving up one thing to get something else. In other words, it is the value of the next best alternative that is foregone. For example, suppose that Country A can produce both wheat and cloth, but it is more efficient at producing wheat than cloth, while Country B is more efficient at producing cloth than wheat. If Country A specializes in producing wheat and trades some of it with Country B for cloth, and Country B specializes in producing cloth and trades some of it with Country A for wheat, both countries can benefit from the trade. This is because Country A can produce more wheat by specializing in it and trading for cloth, and Country B can produce more cloth by specializing in it and trading for wheat. The principle of comparative cost advantage is based on the idea of gains from trade, which means that both countries can be better off by trading with each other even if one country is more efficient at producing all goods than the other.

Maelezo ya Majibu

Maelezo ya Majibu

The rate at which a country's exports are exchanged for its imports is known as the "terms of trade." It is a ratio that measures the relative value of a country's exports to its imports. When a country's terms of trade improve, it means that it can buy more imports for the same amount of exports, while a decline in terms of trade indicates that it must export more to buy the same amount of imports. The other options listed are related but different concepts. - Trade balance refers to the difference between a country's exports and imports of goods and services over a given period of time. If exports exceed imports, the country has a trade surplus, while a trade deficit occurs when imports exceed exports. - The balance of payments is a broader measure that includes not only trade in goods and services, but also capital flows and transfers between countries. It is a record of all economic transactions between a country and the rest of the world over a period of time. - The balance on current account is a component of the balance of payments that measures the net flow of goods, services, income, and transfers between a country and the rest of the world. A surplus on the current account means that a country is earning more from its exports than it is spending on imports, while a deficit means the opposite.

Maelezo ya Majibu

To find out how many hats are demanded when the price is $9.00, we can substitute P = $9.00 into the given demand function Qd = 20 - (1/3)P and solve for Qd. Qd = 20 - (1/3)($9.00) Qd = 20 - $3.00 Qd = $17.00 Therefore, when the price of a men's hat is $9.00, the quantity demanded is 17 hats per week.

Maelezo ya Majibu

Maelezo ya Majibu

The International Monetary Fund (IMF) is concerned with the stabilization of the balance of payments. The balance of payments is a record of all transactions between the residents of a country and the rest of the world over a given period of time, usually a year. It includes transactions in goods, services, and capital, and measures the net flow of funds into or out of a country. When a country has a deficit in its balance of payments, it means that it is importing more than it is exporting and is therefore spending more foreign currency than it is earning. This can lead to a shortage of foreign currency reserves, which can in turn lead to a devaluation of the country's currency and other economic problems. The IMF was established in 1944 to promote international monetary cooperation, facilitate international trade, and promote economic growth and stability. One of the key functions of the IMF is to provide financial assistance to member countries that are experiencing balance of payments difficulties. The IMF provides loans to these countries on the condition that they implement certain economic policies aimed at restoring their balance of payments and achieving economic stability. The IMF also provides technical assistance and policy advice to member countries on a wide range of economic issues.

Maelezo ya Majibu

Maelezo ya Majibu

The demand for torch and batteries is an example of complementary demand. Complementary goods are products that are used together, such that the demand for one good is influenced by the demand for the other. In this case, the demand for batteries is complementary to the demand for torches, as torches require batteries to function properly. If the demand for torches increases, the demand for batteries will also increase as more people will need to buy batteries to power their torches. Similarly, if the demand for batteries increases, the demand for torches will also increase, as more people will need torches to use with their batteries. This shows the complementary relationship between the demand for torches and batteries.

Maelezo ya Majibu

GDP (Gross Domestic Product) measures the total value of goods and services produced within a country's borders, regardless of the nationality of the people or businesses producing them. GNP (Gross National Product), on the other hand, measures the total value of goods and services produced by the citizens and businesses of a country, regardless of where they are located in the world. It includes the income earned by citizens and businesses abroad, and subtracts the income earned by foreigners within the country. To calculate GNP, you need to add net factor income from abroad (income earned by citizens and businesses abroad minus income earned by foreigners in the country) to GDP. Additionally, you need to subtract public transfer payments (such as social security payments) and add consumption of fixed capital (the depreciation of physical assets like buildings and equipment). In summary, GDP measures the total value of goods and services produced within a country's borders, while GNP measures the total value of goods and services produced by the citizens and businesses of a country, both within and outside of its borders, while taking into account various adjustments such as net factor income from abroad, consumption of fixed capital, and public transfer payments.

Maelezo ya Majibu

To determine how much is allocated to Education, we need to look at the pie chart and find the percentage of the budget that is allocated to Education. Looking at the pie chart, we can see that the Education sector is represented by the blue section, which appears to be approximately one-third of the entire pie. To calculate the exact percentage, we can divide the blue section's area by the total area of the pie and multiply by 100. Based on the pie chart, the Education sector occupies approximately 33.33% of the total pie chart. Therefore, we can calculate the amount allocated to Education as follows: $7,200 (total budget) x 0.3333 (percentage allocated to Education) = $2,400.00 Therefore, the answer is $2,400.00.

Maelezo ya Majibu

The reason why more foreign investments are not attracted to West Africa is due to instability in political and industrial policies. Foreign investors are typically looking for stable economic and political environments in which to invest their capital. West Africa has a history of political instability, including coups, civil wars, and unstable governments. This kind of instability creates a high level of risk for investors, who may be hesitant to invest their money in such an uncertain environment. In addition, industrial policies and regulations in West Africa are often unclear, inconsistent, and subject to frequent changes. This makes it difficult for investors to plan for the long term and make informed investment decisions. The lack of transparency and predictability in the policies and regulations governing industries can further deter foreign investors. Overall, the political and industrial policy instability in West Africa is a significant barrier to attracting foreign investments, which could contribute to the region's economic growth and development.

Maelezo ya Majibu

Maelezo ya Majibu

Maelezo ya Majibu

(a) Tax revenue by type

• (i) Direct taxes = Company tax + Workers' income tax \(= 240 + 160 = \$400\) million.
• (ii) Indirect taxes = Excise duties + Taxes on exports + VAT + Import duties \(= 80 + 100 + 150 + 90 = \$420\) million.

(b) Expenditure by type

• (i) Recurrent expenditure = Salaries + Administration + Maintenance of health facilities + Maintenance of vehicles \(= 150 + 200 + 220 + 70 = \$640\) million.
• (ii) Capital expenditure = Construction of roads + Building of schools + Extension of electricity \(= 100 + 120 + 180 = \$400\) million.

(c) Indirect tax as a percentage of total revenue

Total revenue \(= 240 + 160 + 80 + 100 + 150 + 90 + 40 = \$860\) million.

\[\frac{420}{860}\times 100 = 48.84\%\]

(d) Two examples of non-tax revenue: fees and licences; fines and penalties (also rents/royalties, grants and aids, or profits of public enterprises).

(e) Budget surplus or deficit

Total revenue \(= \$860\) million; total expenditure \(= 640 + 400 = \$1040\) million.

\[860 - 1040 = -\$180\ \text{million}\]

Since planned expenditure exceeds expected revenue, it is a deficit budget of \$180 million.

Maelezo ya Majibu

(a) A discriminating monopolist is a sole producer who charges different prices to different consumers (or in different markets) for the same product, where the price differences are not due to differences in the cost of production.

(b) Four conditions necessary for price discrimination

• Monopoly power: the firm must be a price maker with control over supply, otherwise competitors would undercut the higher price.
• Separable markets: the seller must be able to divide buyers into distinct markets or groups (for example by age, location or time of use).
• Different price elasticities of demand: demand must be more elastic in one market than another, so a higher price is charged where demand is inelastic and a lower price where it is elastic.
• No resale (no arbitrage): buyers in the cheap market must be unable to resell to buyers in the dear market, otherwise the price gap would collapse.

(c) Two benefits enjoyed by a discriminating monopolist

• Higher total revenue and profit: by charging each market according to what it will bear, the firm captures more of the consumers' surplus than a single price would allow.
• Ability to serve additional markets: charging a lower price in the elastic (poorer) market lets the firm sell to customers who would otherwise buy nothing, spreading fixed costs and possibly enjoying economies of scale.

Maelezo ya Majibu

(a)(i) Building society is a financial institution that accepts deposits and savings from members and grants them loans, chiefly mortgages, to build, buy or improve houses.

(a)(ii) Central bank is the apex financial institution of a country that issues the national currency, acts as banker to the government and to commercial banks, and controls and regulates the money supply and banking system.

(b) Five instruments the central bank uses to regulate the supply of money

• Open-market operations: buying government securities to increase the money supply, or selling them to reduce it.
• Bank (discount) rate: raising the rate at which it lends to banks makes borrowing dearer and contracts credit; lowering it expands credit.
• Cash-reserve ratio: raising the proportion of deposits banks must hold as reserves reduces their lending power, and vice versa.
• Special deposits: calling for extra frozen deposits from banks removes cash and curtails lending.
• Moral suasion and selective credit control: persuading or directing banks to expand or restrict lending to particular sectors.

(The liquidity ratio requirement is another acceptable instrument.)

Maelezo ya Majibu

(a) Gross Domestic Product (GDP) is the total money value of all final goods and services produced within a country's geographical boundaries in a given year, whether produced by nationals or foreigners. It measures domestic output only.

(b) Gross National Product (GNP) is the total money value of all final goods and services produced by the nationals of a country in a year, wherever they are located. It equals GDP plus net factor income from abroad:

(c) Cost of living is the amount of money a person or household needs to buy the basic goods and services required to maintain a given standard of living over a period. Changes in it are measured by a price (consumer) index; a rise in the price index means a higher cost of living.

(d) Per capita income is the average income per head of the population. It is found by dividing national income by the total population:

(e) Standard of living is the level of material welfare and quality of life enjoyed by the people of a country, shown by the quantity and quality of goods and services each person consumes on average, together with factors such as health, education and leisure. A higher real per capita income generally indicates a higher standard of living.

Maelezo ya Majibu

(a)(i) Peasant farming is small-scale farming carried on by an individual or family, using simple tools and mainly family labour, on a small piece of land, chiefly to produce food for the family's own consumption (subsistence), with only a small surplus sold.

(a)(ii) Co-operative farming is a form of farming in which a group of farmers voluntarily pool their resources (land, labour, capital and equipment), work together, and share the costs, risks and proceeds of production.

(b) Five ways government can assist peasant farmers

• Provision of credit and loans at low interest through agricultural banks, so farmers can buy inputs and expand.
• Subsidies on farm inputs such as improved seeds, fertilizers, agro-chemicals and machinery, to lower production costs.
• Agricultural extension services and education to teach modern farming methods and improve yields.
• Provision of infrastructure such as feeder roads, irrigation, storage and electricity to reduce waste and ease the movement of produce.
• Guaranteed minimum prices and organised marketing (for example marketing boards) so that farmers have assured, stable incomes.

(Other valid points: research into improved crop and animal varieties, and land reform to give farmers secure access to land.)

Maelezo ya Majibu

(a) Price elasticity of supply is the degree of responsiveness of the quantity supplied of a commodity to a change in its price. It is measured as

(b) Joint supply versus competitive supply

• Joint supply occurs when two or more goods are produced together from a single production process, so producing more of one automatically yields more of the other. Example: rearing cattle gives both beef and hides.
• Competitive (rival) supply occurs when goods compete for the same productive resources, so producing more of one means less of the other can be produced. Example: using a piece of land for maize leaves less land for yam.

(c) Four determinants of elasticity of supply

• Time period: supply is more elastic in the long run, when producers can adjust all factors, than in the short run.
• Availability of spare capacity and factors of production: if idle resources and inputs are readily available, output can be raised quickly, making supply elastic.
• Ease and cost of storing the good: goods that can be stored cheaply have more elastic supply, since stocks can be released when price rises.
• Gestation (production) period: goods that take a long time to produce, such as tree crops, have inelastic supply because output cannot respond quickly to price.

Maelezo ya Majibu

(a) Calculation of the missing values

Marginal utility is the change in total utility:

\[MU=\frac{\Delta TU}{\Delta Q}\]

For the third unit:

\[P=TU_3=TU_2+MU_3=19+6=25\]

For the sixth unit:

\[Q=TU_6=TU_5+MU_6=31+0=31\]

For the fifth unit:

\[S=MU_5=TU_5-TU_4=31-30=1\]

Also, the marginal utility of the second unit is:

\[R=MU_2=TU_2-TU_1=19-10=9\]

Units consumed, \(Q\)	Total utility, \(TU\)	Marginal utility, \(MU\)
0	0	–
1	10	10
2	19	9
3	25	6
4	30	5
5	31	1
6	31	0
7	29	−2

Therefore, \(P=25\), \(Q=31\), and \(S=1\).

(b) Consumer equilibrium

The consumer is in equilibrium at the fifth unit of ice cream. At this level, marginal utility equals price:

\[MU_5=\$1.00=P\]

The sixth unit has \(MU=0\), which is less than the price. Therefore, it will not be worthwhile to consume beyond five units.

(c) Marginal utility curve

Plot the points \((1,10)\), \((2,9)\), \((3,6)\), \((4,5)\), \((5,1)\), \((6,0)\), and \((7,-2)\), and join them with a smooth downward-sloping curve.

(d) Law of diminishing marginal utility

The law of diminishing marginal utility states that, other things being equal, as a consumer consumes successive units of a commodity, the satisfaction obtained from each additional unit decreases.

Maelezo ya Majibu

(a) A production possibility curve (PPC) is a graph which shows the maximum possible combinations of two goods that an economy can produce with its given resources and level of technology, within a given period.

(b) The production possibility curve is illustrated below.

• P lies on the PPC. At this point, available resources are fully and efficiently utilized.
• U lies inside the PPC. At this point, resources are under-utilized or inefficiently used.
• X lies outside the PPC. This output combination is not feasible with the present resources and technology.

(c) Production at point X can become feasible through any two of the following:

1. Increase in productive resources: An increase in the quantity or quality of land, labour, capital and entrepreneurship will increase the productive capacity of the economy. The PPC will shift outward, making point X attainable.
2. Technological advancement: Improved methods of production, research and development, and better machines increase output from the same quantity of resources. This shifts the PPC outward and may make X feasible.
3. Human capital development: Training and retraining workers improve their skills, efficiency and productivity. More goods can then be produced, causing an outward shift of the PPC.

(d) The PPC slopes negatively because resources are limited. To produce more of one commodity, some resources must be transferred from the production of the other commodity. Therefore, more of one good can only be obtained by sacrificing some quantity of the other good, which is the opportunity cost.