WAEC SSCE - Economics - 2009

Maelezo ya Majibu

A consumer maximizes their utility in consuming a good 'X' when the marginal utility of the last unit consumed (Mux) is equal to the price of the good (Px). In other words, the consumer will continue to purchase units of the good 'X' until the additional satisfaction received from consuming another unit (Mux) is no longer greater than the price they pay for that unit (Px). This is because if the price of the good is greater than the satisfaction received from consuming it, the consumer would be better off spending their money on something else that gives them more satisfaction per unit of money spent. Alternatively, if the price of the good falls, the consumer is more likely to continue purchasing more units until the Mux equals the new, lower price. On the other hand, if the Mux is greater than the price, the consumer would benefit from consuming more units of the good.

Maelezo ya Majibu

Terms of trade may be defined as the rate at which one country's exports exchange for imports from another country. In other words, terms of trade represent the ratio of export prices to import prices. A country with favorable terms of trade is able to sell its exports at a higher price than it pays for its imports. This means that the country is able to obtain more imports for each unit of its exports. The terms of trade are important because they affect a country's ability to pay for its imports and to finance its economic development. If a country's terms of trade are unfavorable, it will have to export more goods to pay for the same amount of imports. This can be a drag on the country's economic growth and development. Therefore, a country's terms of trade are an important economic indicator that can help policymakers understand the health of the country's economy and make decisions about trade policy.

Maelezo ya Majibu

Net Domestic Product (NDP) can be calculated by subtracting Depreciation from Gross Domestic Product (GDP). NDP = GDP - Depreciation NDP = $100,000 - $40,000 = $60,000 Therefore, the answer is $60,000.

Maelezo ya Majibu

Maelezo ya Majibu

Maelezo ya Majibu

The equilibrium price is the price at which the quantity demanded equals the quantity supplied. To find the equilibrium price, we need to set Qd equal to Qs and solve for p. Qd = Qs 20 - 2p = 6p - 12 20 + 12 = 6p + 2p 32 = 8p p = 4 Therefore, the equilibrium price is 4 Naira.

Maelezo ya Majibu

The Central Bank serves as a banker's bank. The Central Bank is the apex bank that regulates the banking system of a country. It acts as the banker to the government and all other banks operating within the country. One of its main functions is to ensure the stability of the financial system by regulating the money supply, controlling inflation, and acting as a lender of last resort to other banks. As a banker's bank, it provides financial services such as loans, deposits, and other financial facilities to other banks. It also supervises and regulates the activities of other banks and ensures that they operate within the legal framework and guidelines set by the regulatory authorities.

Maelezo ya Majibu

Fiscal policy is associated with taxation and government expenditure. It involves the use of government spending and taxation to influence the economy. Through fiscal policy, a government can increase or decrease its spending, and also increase or decrease taxes to achieve specific economic goals, such as reducing inflation, stimulating economic growth, or reducing unemployment. For example, a government can increase spending on infrastructure projects or social welfare programs to boost economic activity, or it can increase taxes to reduce inflation or fund public services. Thus, fiscal policy is an important tool for governments to manage the economy and achieve economic objectives.

Maelezo ya Majibu

Maelezo ya Majibu

Government fixing of prices below the equilibrium point is aimed at protecting the consumers. When the government sets prices below the equilibrium point, it makes goods and services more affordable for consumers. This is particularly important for essential goods, such as food and medicine, that people need to live. By keeping prices low, the government can help ensure that everyone has access to these basic necessities. However, this policy may lead to shortages, as suppliers may not be willing or able to produce and sell goods at prices lower than their cost of production.

Maelezo ya Majibu

At a co-efficient of price elasticity of supply of 0.5, supply is said to be inelastic. This means that a change in price will have a relatively smaller effect on the quantity supplied. In other words, if the price of a product increases by a certain percentage, the quantity supplied will only increase by a smaller percentage. If the price of a product decreases by a certain percentage, the quantity supplied will only decrease by a smaller percentage. An inelastic supply curve is relatively steep, indicating that the quantity supplied does not respond much to changes in price.

Maelezo ya Majibu

A production possibility curve (PPC) represents the maximum combinations of two goods that a society can produce with its available resources and technology. If a society is operating below the PPC, it means that it is not utilizing its productive resources efficiently or optimally. In other words, it is producing less than what it is capable of producing. This could be due to various factors, such as unemployment, underutilization of resources, lack of investment in technology or education, or inefficient allocation of resources. Therefore, a society that operates below the production possibility curve is using its productive resources inefficiently.

Maelezo ya Majibu

The five countries that established the Organization of Petroleum Exporting Countries (OPEC) are Kuwait, Venezuela, Iran, Iraq, and Saudi Arabia. OPEC is an international organization that was founded in 1960 to coordinate the petroleum policies of its member countries and to provide a platform for oil-producing nations to negotiate with oil-consuming countries. These five founding members established OPEC with the aim of controlling the price and supply of oil in the global market. Over the years, other countries have joined OPEC, and the organization has become a powerful force in the global oil industry. As of 2021, OPEC has 13 member countries, which collectively control more than 40% of the world's oil production and around 73% of the world's "proven" oil reserves.

Maelezo ya Majibu

The terms of trade are described as unfavorable when the price of imports rises relative to those of exports. The terms of trade refer to the ratio between the prices of a country's exports and imports. When the prices of a country's exports increase relative to those of its imports, the terms of trade are said to be improving. However, when the prices of a country's imports increase relative to those of its exports, the terms of trade are said to be deteriorating or unfavorable. For instance, if a country exports $100 worth of goods and imports $200 worth of goods, it would need to export two times more goods to pay for the same amount of imports if the prices of its exports and imports remain constant. If the prices of its exports decline, then the country would need to export even more goods to pay for the same amount of imports. This makes it more difficult for the country to finance its imports, leading to a less favorable balance of trade. Therefore, when the price of imports rises relative to those of exports, the terms of trade are considered unfavorable.

Maelezo ya Majibu

Manufacturing involves the process of changing raw materials or components into finished products that are ready to be sold or used by consumers. This process may involve several steps, such as designing, planning, sourcing raw materials, assembling or processing the materials, and quality control. The end goal is to create a finished product that is of high quality, meets consumer demand, and generates revenue for the manufacturer. Therefore, the correct option is "changing items to new states."

Maelezo ya Majibu

A perfect competitor is a hypothetical market structure where no individual participant can influence the market price of a product. Therefore, the market price (P) is equal to the marginal revenue (MR) and average revenue (AR) of the product. So, the correct statement is "P = AR = MR." This means that the price that a seller receives for a unit of their product (P) is equal to both the total revenue received (AR) and the additional revenue gained from selling one more unit (MR).

Maelezo ya Majibu

A socialist economy is an economic system where the central planning authority determines what goods to produce and in what quantity. In a socialist economy, the means of production are owned by the state or by the workers collectively. The state decides what goods and services are needed, how much to produce, and how to distribute them. Prices are set by the state, and there is little or no competition between producers. The aim of a socialist economy is to provide for the needs of all members of society, with a focus on meeting basic needs rather than on generating profit.

Maelezo ya Majibu

If an increase in earnings leads to more of a commodity being demanded, the good is said to have positive income elasticity. Income elasticity of demand measures the responsiveness of the quantity demanded of a good to a change in income. When the income elasticity of demand for a good is positive, it means that as consumers' income increases, they demand more of the good. This indicates that the good is a normal good, meaning that it is a good for which demand increases as income increases. On the other hand, when the income elasticity of demand for a good is negative, it means that as consumers' income increases, they demand less of the good. This indicates that the good is an inferior good, meaning that it is a good for which demand decreases as income increases. Therefore, if an increase in earnings leads to more of a commodity being demanded, it indicates that the commodity is a normal good and has positive income elasticity.

Maelezo ya Majibu

The institution that is specialized in lending money for the purpose of developing real estate is a "mortgage bank". A mortgage bank provides loans specifically for real estate purchases, construction, and development. These loans are secured by the property itself, which means that the property serves as collateral for the loan. Mortgage banks usually have longer loan terms and offer lower interest rates compared to commercial banks, as their business is solely focused on real estate lending.

Maelezo ya Majibu

When the price of a commodity increases and the quantity demanded also increases, this is a case of exceptional demand. Exceptional demand is when the demand for a product increases despite an increase in price. This is because the product has become more desirable, and consumers are willing to pay more for it. This type of demand usually occurs for products that are considered to be luxury goods, such as high-end fashion items or luxury cars. As the price of these items increases, they become more desirable to consumers who view them as a status symbol. In contrast, normal demand is when the quantity demanded decreases as the price increases. This is the typical relationship between price and demand, as consumers are usually more price-sensitive for everyday items. Overall, exceptional demand occurs when consumers are willing to pay more for a product because they perceive it to be more valuable or desirable, even though the price has increased.

Maelezo ya Majibu

A market in which a single price obtains for a product is known as a perfect market. In a perfect market, there are many buyers and sellers, and all participants have access to the same information about the price and quality of the product being sold. No single buyer or seller has enough market power to influence the price, and all transactions are conducted at the prevailing market price. In a perfect market, there are no barriers to entry or exit, meaning that new sellers can enter the market and compete freely with existing sellers, and existing sellers can leave the market if they wish. As a result, prices in a perfect market are determined solely by supply and demand forces, with no interference from outside factors. Overall, a perfect market is considered an ideal market structure in which resources are allocated efficiently, and both buyers and sellers can benefit from the competition and transparency that exist in the market.

Maelezo ya Majibu

A large number of buyers and sellers is a condition necessary for a perfect market. In a perfect market, there are no barriers to entry, and there is a large number of buyers and sellers. This means that no one buyer or seller has any significant control over the price of goods or services. As a result, buyers and sellers must compete with one another in order to get the best deal. This competition helps to ensure that the market operates efficiently, with prices reflecting the true value of goods and services. It also means that buyers and sellers are not able to easily influence the market, as there are too many players involved.

Maelezo ya Majibu

The intermediary between the producer and the retailer is the wholesaler. A wholesaler is a type of intermediary who buys goods in bulk from the manufacturer or producer and sells them in smaller quantities to retailers or other businesses. The wholesaler helps bridge the gap between the producer and the retailer by providing a distribution channel for goods, enabling the producer to reach a larger market. Wholesalers typically purchase goods from producers in large quantities and then store them in a warehouse before selling them to retailers or other businesses. They may also provide other services such as transportation, packaging, and financing. In summary, a wholesaler acts as an intermediary between the producer and the retailer by purchasing goods in bulk from the producer and selling them in smaller quantities to retailers or other businesses.

Maelezo ya Majibu

To calculate National Income, we can use the following formula: National Income = Gross Domestic Product (GDP) - Depreciation + Factor Receipts from Abroad - Factor Payments to Foreigners Plugging in the given values, we get: National Income = $100,000 - $40,000 + $25,000 - $20,000 National Income = $65,000 Therefore, the National Income is $65,000. Depreciation is subtracted from GDP because it represents the wear and tear on capital goods used in production. Factor payments to foreigners are payments made to foreign individuals and companies for factors of production such as labor and capital. Factor receipts from abroad are receipts earned by domestic individuals and companies for factors of production used abroad. These are added to or subtracted from GDP to arrive at the National Income, which is the income earned by domestic factors of production.

Maelezo ya Majibu

A market economy is an economic system where the production and distribution of goods and services are determined by the interactions of buyers and sellers in a market. The features of a market economy include competition among producers, the forces of demand and supply guiding production decisions, and the paramountcy of profit motive. Therefore, public ownership of capital is not a feature of market economies as the private sector owns and controls capital in this system.

Maelezo ya Majibu

A major aim of a cartel is to regulate output through quota systems. Cartels are formed by producers of a particular commodity to gain control over the supply and price of the commodity. The aim is to limit competition and increase prices by collectively setting output quotas for member firms. By agreeing on output levels, the cartel members can control the supply of the commodity in the market, which can lead to higher prices and increased profits for the member firms. Therefore, the primary goal of a cartel is to regulate production and maintain high prices for the commodity.

Maelezo ya Majibu

The headquarters of the African Development Bank (ADB) was originally located in Abidjan, Côte d'Ivoire. The African Development Bank is a regional multilateral development bank that was founded in 1964 to promote economic and social development in Africa. It provides financial and technical assistance to African countries in support of development projects and programs. At its founding, the ADB's headquarters was established in Abidjan, Côte d'Ivoire, which was also the location of its first Annual Meeting of the Board of Governors. The headquarters remained in Abidjan until 2003 when political instability in Côte d'Ivoire forced the bank to temporarily relocate its headquarters to Tunis, Tunisia. In 2014, the ADB officially returned its headquarters to Abidjan, where it remains to this day. The bank's return to Abidjan was seen as a symbol of the country's return to stability and a recognition of its important role in promoting development in Africa.

Maelezo ya Majibu

The economic system which relies mainly on the price mechanism for the allocation of scarce resources is known as a market or capitalist economic system. In this system, prices are determined by the interaction of supply and demand forces in the market. Producers supply goods and services based on the prices that consumers are willing to pay for them, and consumers allocate their limited resources to the goods and services that provide them with the highest satisfaction or utility. The role of the government in this system is limited, and it generally only intervenes to ensure that markets function properly and to protect property rights.

Maelezo ya Majibu

The tax imposed on good manufacture within a country is an excise tax. An excise tax is a tax that is levied on specific goods produced or sold within a country. The tax is typically included in the price of the goods and is paid by the manufacturer or seller of the goods. The purpose of an excise tax is to raise revenue for the government, while also discouraging the production or consumption of certain goods that are considered harmful or undesirable. Examples of goods that are subject to excise taxes include alcohol, tobacco, gasoline, and firearms.

Maelezo ya Majibu

Disposable income is not the same as total income. Disposable income is the amount of income that an individual or household has left after paying all taxes and other mandatory deductions from their gross income. It is the income that is available for spending, saving or investing. In other words, disposable income is calculated by subtracting all taxes and other mandatory deductions, such as social security contributions or health insurance premiums, from the total income. For example, if an individual earns a gross income of $50,000 in a year and pays $10,000 in taxes and other mandatory deductions, their disposable income would be $40,000 ($50,000 - $10,000). Therefore, the correct answer is option (A) less tax, as disposable income is the total income after all taxes and other mandatory deductions have been subtracted from the gross income.

Maelezo ya Majibu

The marketing of government security by the Central Bank is termed as open market operation. Open market operations refer to the buying and selling of government securities by the central bank in the open market. The main objective of this operation is to influence the money supply in the economy. When the central bank wants to increase the money supply, it purchases government securities from banks and other financial institutions, which increases the cash reserves of these institutions. This, in turn, allows the banks to lend more money to businesses and individuals, increasing the overall money supply in the economy. On the other hand, when the central bank wants to decrease the money supply, it sells government securities to banks and other financial institutions, decreasing their cash reserves and reducing the amount of money available for lending. By using open market operations, the central bank can control the money supply in the economy and influence interest rates, which can have a significant impact on economic activity.

Maelezo ya Majibu

The need for development planning arises largely from the fact that productive resources are scarce relative to the demand for them. Development planning is the process of setting goals and strategies to achieve economic growth and development. Productive resources such as land, labor, and capital are limited, while the demand for goods and services is constantly increasing due to population growth and changing consumer preferences. Therefore, development planning is necessary to allocate resources efficiently and effectively, and to ensure that economic growth is sustainable and equitable. Without planning, there is a risk of resource misallocation, economic inefficiency, and social inequality.

Maelezo ya Majibu

The main objective of setting up a private business organization is to maximize profits. This means that the business is primarily concerned with generating as much revenue as possible while minimizing costs in order to earn the highest possible profit margin. Profit maximization allows the business to grow and expand, create more job opportunities, and reinvest in new technologies and infrastructure. While a private business may also pursue other objectives such as social responsibility or promoting exports, the ultimate goal is to generate profits and ensure the long-term sustainability of the organization.

Maelezo ya Majibu

Economic development is reflected in the increase in productive capacity. Economic development refers to the process by which an economy improves the standard of living of its people through the increase in the production and consumption of goods and services. Productive capacity, which refers to the ability of an economy to produce goods and services, is a key indicator of economic development. As an economy develops, it is able to increase its productive capacity through the development of its infrastructure, the expansion of its industries, and the improvement of its technology and human capital. This, in turn, leads to an increase in the quantity and quality of goods and services produced, which contributes to the overall improvement in the standard of living of the people in the economy. Therefore, an increase in productive capacity is a key reflection of economic development.

Maelezo ya Majibu

The 'U-shaped' of the short run average cost (AC) curve is due to the law of variable proportions. The law of variable proportions, also known as the law of diminishing marginal returns, states that as more and more units of a variable input are added to a fixed input, the marginal product of the variable input will eventually decrease. In the short run, at the beginning of the production process, as more variable inputs are added, the marginal product of these inputs will increase. As a result, the average cost of production will decrease, since the total cost will be spread over a greater output. This is the downward-sloping portion of the 'U-shaped' AC curve. However, at a certain point, adding more variable inputs will lead to diminishing marginal returns. This means that the marginal product of the additional variable inputs will start to decrease, causing the average cost of production to increase. This is the upward-sloping portion of the 'U-shaped' AC curve. At the minimum point of the 'U-shaped' AC curve, the marginal product of the variable input is equal to the average product, and the average cost is at its minimum. Beyond this point, the marginal product of the variable input continues to decrease, causing the average cost to increase. In summary, the 'U-shaped' of the short run average cost (AC) curve is due to the law of variable proportions, which causes the average cost of production to decrease at first as more variable inputs are added, and then increase as the marginal product of the variable input diminishes.

Maelezo ya Majibu

The concept of opportunity cost is also referred to as the "real cost." Opportunity cost refers to the cost of choosing one option over another, which includes the benefits forgone from the next best alternative. In other words, it is the value of the best alternative foregone. It is called the "real cost" because it is a more accurate reflection of the true cost of a decision, rather than just the monetary cost.

Maelezo ya Majibu

Maelezo ya Majibu

In a capitalist economy, resources are privately owned. This means that individuals, businesses, or organizations own and control the resources such as land, labor, and capital. The ownership of resources is a fundamental aspect of capitalism, and it allows individuals to make decisions about how to use these resources to produce goods and services that can be sold for profit. In a capitalist economy, the government's role is typically limited to regulating the market and enforcing property rights, rather than owning or controlling resources.

Maelezo ya Majibu

Maelezo ya Majibu

Expenditure by foreign tourists in a country will be recorded as visible exports. Visible exports refer to physical goods that are produced in one country and sold to another country. However, when foreign tourists visit a country and spend money on goods and services, their expenditures are also recorded as visible exports. This is because the money spent by foreign tourists is considered an inflow of money into the country's economy, and it contributes to the country's gross domestic product (GDP). The more money spent by foreign tourists in a country, the higher the visible exports will be, which can have a positive impact on the country's economy. Examples of visible exports in the tourism industry include purchases of hotel accommodations, food and beverages, souvenirs, transportation services, and entertainment activities. Overall, visible exports reflect the value of goods and services produced in a country that are sold to other countries, including the expenditures made by foreign tourists within the country.

Maelezo ya Majibu

To find the population density, we divide the total population by the land area. Population density = Total population / Land area In this case, the total population is given as 100 million and the land area is given as 50 square kilometres. So, Population density = 100,000,000 / 50 Population density = 2,000,000 Therefore, the population density of town Y is 2 million people per square kilometre. The answer is option D.

Maelezo ya Majibu

The interaction of supply and demand for labor determines the wage rate that employers are willing to pay and the number of workers that are willing to work. If the demand for labor is high and the supply is low, then employers will need to offer higher wages to attract workers. On the other hand, if the supply of labor is high and the demand is low, then employers can offer lower wages because there are more workers available. The wage rate ultimately affects the production costs of businesses. If wages are high, then production costs will be higher, and this may result in higher prices for consumers. Alternatively, if wages are low, then businesses may have lower production costs, which can lead to higher profits. Overall, the interaction of supply and demand for labor is an essential factor that affects the wage rate, production costs, and ultimately, the profits of businesses.

Maelezo ya Majibu

Maelezo ya Majibu

Labor can be efficient when there are adequate tools to work with. Efficiency in labor refers to the ability of workers to produce more output with less input, which leads to increased productivity. When workers have access to the appropriate tools and equipment needed to perform their tasks, they can perform their duties more quickly and effectively, resulting in increased efficiency. For example, if a construction worker has access to power tools and heavy machinery, they can complete a job more efficiently than if they were using hand tools. Similarly, if an office worker has access to a computer and appropriate software, they can complete their work more quickly and accurately than if they were using manual methods. On the other hand, if workers do not have access to adequate tools, their productivity may suffer, and they may have to work longer hours or exert more effort to complete the same tasks. This can lead to decreased efficiency and increased costs for employers. Therefore, providing workers with adequate tools and equipment is essential to ensure that labor is efficient.

Maelezo ya Majibu

Choice is necessitated by the scarcity of resources. Scarcity is the fundamental economic problem of having unlimited wants and needs in a world of limited resources. Because resources are limited, individuals, businesses, and societies must make choices about how to allocate those resources in the most efficient and effective way possible. For example, an individual may have to choose between buying a new car or saving for retirement, because they cannot afford to do both. A business may have to choose between expanding its product line or investing in new technology. A society may have to choose between investing in education or healthcare. In each case, the choices are necessitated by the scarcity of resources. Because resources are limited, we must make choices about how to allocate them in the most effective way possible to satisfy our unlimited wants and needs.

Maelezo ya Majibu

Petroleum is the most capital-intensive sector among the given options. This is because the production and refining of petroleum require large amounts of capital investment in equipment, technology, and infrastructure. Additionally, the exploration and drilling of oil wells are very costly, which contributes to the high capital intensity of the sector. In contrast, sectors such as commerce, tourism, and insurance typically require less capital investment to start and operate a business.

Maelezo ya Majibu

One advantage of a sole proprietor is that it can be managed without conflicts. A sole proprietorship is a type of business in which one person owns and operates the entire business. Since there is only one owner, the business can be managed in a streamlined manner without any conflicts that may arise from multiple owners with differing opinions or goals. This means that the owner can make decisions quickly and efficiently, without the need for lengthy discussions or negotiations. In contrast, in a partnership or corporation, multiple owners may have different ideas about how to run the business or may have conflicting interests. This can lead to disagreements and conflicts that can slow down the decision-making process and make it difficult to implement changes. Therefore, one advantage of a sole proprietorship is that it allows for efficient management without conflicts, which can help the business to be more agile and responsive to changes in the market.

Maelezo ya Majibu

The study of economics becomes necessary because of the scarcity of resources. Scarcity means that there are limited resources, such as land, labor, and capital, but unlimited wants and needs of people. Therefore, we need to make choices and allocate resources efficiently to satisfy our needs and wants. Economics is the study of how societies allocate scarce resources among competing uses. It helps us to understand how individuals, businesses, governments, and other organizations make decisions about what goods and services to produce, how to produce them, and who gets to consume them. By studying economics, we can learn how to use our limited resources in the most efficient way possible and maximize our well-being.

Maelezo ya Majibu

The type of demand that exists between a torchlight and a battery is complementary demand. This is because the demand for torchlight and batteries are related to each other, and one product (the battery) is needed to use the other product (the torchlight). In other words, the demand for batteries is directly related to the demand for torchlights, and vice versa. If there is an increase in demand for torchlights, there will likely be a corresponding increase in demand for batteries to power those torchlights. Similarly, if there is a decrease in demand for batteries, there will likely be a decrease in demand for torchlights, as they will not be able to function without a power source. Therefore, torchlights and batteries are considered complementary goods that are often used together.

Maelezo ya Majibu

Government expenditure on the construction of roads and bridges is capital expenditure. Capital expenditures are expenses made by a company or government to acquire, improve, or maintain physical assets, such as buildings, machinery, or infrastructure. In the case of roads and bridges, the government is investing in the creation of new physical assets that will benefit the public for years to come. These assets are considered to have a long-term value and will contribute to economic growth and development. In contrast, recurrent expenditures are ongoing expenses, such as salaries, utilities, and maintenance costs, that are necessary to keep an organization running but do not create any new physical assets. Supplementary expenditures are additional expenses made to cover unexpected or emergency situations, while variable expenditures are expenses that vary based on the level of output or activity. Therefore, since the construction of roads and bridges is a long-term investment in physical assets, it is considered capital expenditure for the government.

Maelezo ya Majibu

(a) Direct tax versus indirect tax.

• Direct tax is a tax levied directly on the income or property of individuals and firms, where the person taxed also bears the burden and cannot easily shift it to another. The impact and the incidence fall on the same person. Examples: personal income tax (PAYE), company (corporate) tax, capital gains tax, and property tax.
• Indirect tax is a tax levied on goods and services, where the tax is collected from one person (for example the trader) but its burden can be shifted to another (the final consumer) through higher prices. The impact and the incidence fall on different persons. Examples: import and export duties (customs duties), excise duties, value added tax (VAT), and sales tax.

In short, a direct tax is paid on what you earn or own and cannot be shifted, while an indirect tax is paid on what you spend and its burden can be passed on.

(b) Four problems of tax collection in a West African country.

1. Widespread tax evasion and avoidance. Many taxpayers deliberately understate their incomes or fail to pay, and self-employed people whose incomes are hard to assess escape the net.
2. Inadequate and dishonest tax personnel. Shortage of trained, honest tax officials, together with corruption and collusion, leads to under-assessment and loss of revenue.
3. Absence of proper records and a large informal sector. Poor record-keeping, illiteracy, and a large number of small, unregistered businesses make it difficult to determine and collect the correct tax.
4. Poor administration and taxpayer resistance. Weak machinery for assessment and collection, a low tax culture, and public resentment (especially where taxes seem high or benefits are not seen) make collection difficult. (Other valid points: high cost of collection and inaccurate population/income data.)

Maelezo ya Majibu

(a)(i) Devaluation. Devaluation is a deliberate reduction in the official (external) value of a country's currency in relation to other currencies (or gold) by the government or monetary authority, under a fixed exchange-rate system. It makes the country's exports cheaper and its imports dearer.

(a)(ii) Depreciation of currency. Depreciation is a fall in the external value of a country's currency brought about by the free forces of demand and supply in the foreign-exchange market, under a floating (flexible) exchange-rate system, rather than by a government decision. The key difference is that devaluation is a deliberate act of the authorities under a fixed rate, while depreciation happens automatically through market forces under a floating rate.

(b) Three measures to correct a balance of payments deficit. A deficit means the country's total payments to abroad exceed its total receipts from abroad.

1. Devaluation of the currency. Reducing the external value of the currency makes exports cheaper and imports dearer, so exports rise, imports fall, and the deficit narrows.
2. Import restrictions. Imposing tariffs, quotas, or an outright ban on non-essential imports reduces the amount spent abroad and improves the balance.
3. Deflationary (contractionary) policy. Reducing domestic demand through higher taxes, reduced government spending, and higher interest rates lowers spending on imports and frees goods for export. (Other valid measures: export promotion and diversification, exchange control, and seeking foreign loans or aid.)

Maelezo ya Majibu

(a) Why scarcity is a fundamental problem in Economics. Scarcity means that human wants are unlimited while the resources (land, labour, capital, and enterprise) available to satisfy them are limited. Because resources are limited relative to wants, society cannot produce everything everyone desires, so it is forced to make choices about how to use those scarce resources. This act of choosing gives rise to opportunity cost (the next best alternative given up) and to the three basic questions of what, how, and for whom to produce. Since every other economic decision flows from this need to allocate limited resources among competing unlimited wants, scarcity is the fundamental problem that Economics exists to study.

(b) Economics as a science and a social science.

• (i) A science. Economics is a science because it uses a systematic method of study: it observes economic facts, forms hypotheses, tests them, and derives laws and theories (for example the law of demand) that can be used to predict behaviour.
• (ii) A social science. It is a social science because it studies the behaviour of human beings in society, specifically how people and groups make choices in producing, distributing, and consuming wealth, rather than studying non-living matter.

(c) How governments solve the problem of scarcity. Government cannot abolish scarcity, but it can manage it by allocating resources more efficiently. Ways include:

1. Setting priorities through planning and budgeting. Government decides which needs are most urgent and directs resources to them.
2. Increasing the supply of resources. Through education and training it improves labour, and through investment it increases capital and develops natural resources.
3. Encouraging efficient use of resources. By improving technology and reducing waste, more output is obtained from the same resources.
4. Controlling and rationing. Through price controls, taxation, subsidies, and rationing, government influences how scarce goods are shared.
5. Encouraging production and imports. Incentives to producers and importation of scarce goods increase the quantity available to satisfy wants.

Maelezo ya Majibu

(a) Chain of distribution for manufactured consumer goods. This is the route a good follows from where it is made to the final user. The usual chain is:

Manufacturer (producer) → Wholesaler → Retailer → Consumer.

The manufacturer makes the goods, sells them in bulk to the wholesaler, who breaks the bulk and supplies smaller quantities to retailers, who then sell in the smallest quantities to final consumers. (In some cases an agent or middleman links the manufacturer and the wholesaler.)

(b)(i) Functions of the wholesaler.

• Buying in bulk and breaking bulk. He buys large quantities from manufacturers and sells them in smaller quantities to retailers.
• Storage (warehousing). He holds stocks of goods until they are needed, thereby relieving both the manufacturer and the retailer of the burden of storage.
• Bearing risk. He carries the risks of price changes, deterioration, and loss while the goods are in his possession.
• Providing finance. By paying the manufacturer promptly and often granting credit to retailers, he finances part of the chain.
• Transportation and preparation. He moves goods from the factory and may grade, pack, and brand them for the retailer.

(b)(ii) Functions of the retailer.

• Selling in small quantities. He breaks the wholesaler's bulk further and sells to consumers in the small amounts they can afford.
• Bringing goods near the consumer. By operating shops in convenient locations, he makes goods readily available to final buyers.
• Providing variety and information. He stocks a range of goods so consumers can choose, and advises them on the qualities and uses of products.
• Granting credit and after-sales service. He may sell on credit and offer services such as delivery and repairs.
• Holding small stocks and advising producers. He keeps ready stock for immediate sale and passes consumers' preferences back up the chain.

Maelezo ya Majibu

(a) Effects of fixing a price away from equilibrium. Equilibrium price is where the demand and supply curves intersect, so quantity demanded equals quantity supplied.

(i) Price fixed above the equilibrium price (a minimum price or price floor). At a price higher than equilibrium, quantity supplied exceeds quantity demanded, so a surplus (excess supply) results. Producers offer more than consumers are willing to buy, leaving unsold goods. Governments often set such a floor to protect producers (for example a guaranteed minimum price for farmers), and may have to buy up the surplus. On a demand-and-supply diagram, the controlled price is drawn as a horizontal line above the equilibrium, and the horizontal gap between the supply and demand curves at that price measures the surplus.

(ii) Price fixed below the equilibrium price (a maximum price or price ceiling). At a price lower than equilibrium, quantity demanded exceeds quantity supplied, so a shortage (excess demand) results. Governments set such a ceiling to help consumers buy essential goods cheaply, but the shortage often leads to rationing, queues, hoarding, and a black market. On the diagram, the controlled price is a horizontal line below the equilibrium, and the horizontal gap between the demand and supply curves at that price measures the shortage.

(b)(i) Abnormal demand. Abnormal (or exceptional) demand is a situation in which more of a good is bought as its price rises and less is bought as its price falls, contrary to the ordinary law of demand. The demand curve for such a good slopes upward from left to right.

(b)(ii) Two reasons for its occurrence.

• Giffen goods. These are inferior staple goods (for example a cheap staple food) on which poor consumers spend a large part of their income; when the price rises they become poorer in real terms and buy even more of the cheap staple, cutting out dearer substitutes.
• Goods of ostentation (Veblen/prestige goods) and expectation of further price changes. For prestige goods (for example diamonds), a higher price raises their appeal, so more is demanded; also, if buyers expect prices to keep rising, they buy more now despite the higher price.

Maelezo ya Majibu

The natural growth rate per '000 is the birth rate minus the death rate: \( \text{NGR} = \text{Birth rate} - \text{Death rate} \). We rearrange this to find each missing value.

(a) Missing values

• L (1971 NGR) \( = 45 - 32 = \mathbf{13} \).
• P (1972 death rate): \( 39 - P = 12.50 \Rightarrow P = 39 - 12.50 = \mathbf{26.50} \).
• Q (1973 NGR) \( = 26 - 22 = \mathbf{4} \).
• R (1974 birth rate): \( R - 22.50 = 4.50 \Rightarrow R = 22.50 + 4.50 = \mathbf{27} \).
• S (1975 NGR) \( = 26.50 - 22.50 = \mathbf{4} \).
• T (1976 death rate): \( 20.50 - T = 3.00 \Rightarrow T = 20.50 - 3.00 = \mathbf{17.50} \).

(b) Bar chart. On the horizontal axis mark the years 1971 to 1976 with equal spacing; on the vertical axis mark the natural growth rate from 0 to about 14 (scale, for example, 1 cm to 2 units). Draw one vertical bar of equal width for each year with heights 13.00, 12.50, 4.00, 4.50, 4.00 and 3.00 respectively. Leave equal gaps between the bars and title the chart "Natural growth rate of country N, 1971 to 1976". The bars show a sharp drop after 1972.

(c) Three reasons for changes in the birth rate:

• The level of education and awareness of family planning and contraception.
• Cultural and religious beliefs and attitudes toward large families.
• The average age of marriage and the number of women in paid employment, which affects how many children couples have.

Maelezo ya Majibu

(a) Definition of labour. Labour is any physical or mental human effort directed towards the production of goods and services in return for a reward (wages or salary). As a factor of production, it refers to the human effort, skill, and ability used in production, and its reward is wages.

(b) Four factors that affect the efficiency of labour. Efficiency of labour is the ability of a worker to produce a large quantity of good-quality output within a given time.

1. Education and training. A well-educated, well-trained, and skilled worker performs tasks faster and better, so improved education and vocational training raise labour efficiency.
2. Level of technology and quality of equipment. Workers who use modern, efficient machines and tools produce more and better output than those using crude or obsolete equipment.
3. Health and welfare of the worker. Healthy, well-fed workers with good medical care and housing are stronger and more productive, whereas sick or poorly fed workers are less efficient.
4. Wages, incentives, and conditions of work. Adequate and prompt wages, bonuses, promotion prospects, and good working conditions motivate workers to put in more effort, raising efficiency; poor pay and conditions lower it. (Other valid factors: managerial and organisational ability, job security, and the natural ability and attitude of the worker.)

Maelezo ya Majibu

(a) Capital market. A capital market is a market for the buying and selling of long-term financial securities, that is, funds and instruments that mature in more than one year. It brings together those who have surplus long-term funds (lenders and investors) and those who need long-term funds (governments and firms) for investment. Its institutions include the stock exchange, development banks, insurance companies, and issuing houses.

(b) Three instruments used in the capital market.

1. Shares (equities). A share is a unit of the ownership capital of a company. A shareholder is part-owner of the company and receives a share of profit called a dividend. Ordinary shares carry voting rights but variable dividends, while preference shares carry a fixed rate of dividend paid before ordinary shares but usually no voting rights.
2. Debentures (bonds/loan stock). A debenture is a written acknowledgement of a long-term loan to a company. The holder is a creditor, not an owner, and receives a fixed rate of interest whether or not the company makes a profit; the loan is repaid on maturity, and it may be secured on the company's assets.
3. Government stocks (development or government bonds). These are long-term securities issued by government to borrow from the public for development projects. They carry a fixed rate of interest and are repaid at a stated future date, and they are regarded as very safe investments.

(Other acceptable instruments include mortgages and treasury certificates of longer maturity.)

Maelezo ya Majibu

OPEC is an intergovernmental cartel of major crude-oil exporting nations formed in 1960 to co-ordinate and unify the petroleum policies of its members. Its continued existence rests on the shared economic interests that a single producer, acting alone, cannot secure. Five reasons are:

1. To stabilise crude-oil prices. Oil demand is price-inelastic in the short run, so uncontrolled competition among exporters would cause violent price swings. By co-ordinating supply, OPEC smooths prices and protects members from ruinous price collapses.
2. To regulate output through production quotas. Members share the world market by agreeing on how much each may produce. Restricting total supply keeps prices at a remunerative level and prevents a glut that would depress revenue.
3. To secure fair and stable revenue for member states. Most members are developing, mono-cultural economies that depend heavily on oil earnings to finance national budgets and development plans; OPEC helps guarantee a steady and adequate income stream.
4. To present a united bargaining front against powerful buyers. Acting collectively gives members far greater negotiating strength against the large multinational oil companies and consuming nations than any single country would have alone.
5. To protect the long-term value of an exhaustible resource and share technical information. Members co-operate to conserve a wasting asset, ensure a steady supply to consumers, and exchange technical, geological and market expertise for mutual benefit.

Examination reminder: frame each reason around a collective economic gain that individual action could not achieve, since that co-operative logic is the reason the cartel survives.

Maelezo ya Majibu

(a) Distinguishing the cost concepts.

• (i) Fixed cost vs variable cost. Fixed cost is a cost that does not change with the level of output in the short run; it is incurred even when output is zero (for example rent, insurance, salaries of permanent staff). Variable cost is a cost that changes directly with the level of output, rising as output rises and falling as it falls (for example raw materials, wages of casual labour, fuel).
• (ii) Real cost vs money cost. Real cost is the cost of producing a good measured in terms of the effort, sacrifice, and other goods forgone to produce it (an opportunity-cost idea). Money cost is the actual amount of money spent by the firm on the factors of production used to produce the good.
• (iii) Implicit cost vs explicit cost. Implicit cost is the value of the owner's own resources used in the business for which no actual money payment is made (for example the rent forgone on the owner's own building or the salary he could have earned elsewhere). Explicit cost is the actual money payment made to outsiders for factors and inputs (for example wages, purchases of raw materials, rent paid).

(b)(i) Recommendation when average cost is greater than price. When \( AC > P \), the firm is making a loss on each unit. In the short run the firm should continue to produce provided the price is still above average variable cost, so that it can cover its variable costs and part of its fixed costs; if the price is below average variable cost, it should shut down. In the long run, if the loss persists, it should close down and leave the industry.

(b)(ii) Reason. Fixed costs must be paid whether or not the firm produces. As long as price covers average variable cost and leaves something towards fixed cost, producing gives a smaller loss than closing (which would mean losing the whole of the fixed cost), so it pays to keep operating in the short run.

Maelezo ya Majibu

The Economic Community of West African States (ECOWAS) was established in 1975 (Treaty of Lagos) to promote co-operation and integration among West African countries. Five of its objectives are:

1. Promotion of trade among member states. ECOWAS aims to remove trade barriers such as tariffs and quotas between members so as to create a large single West African market and increase intra-regional trade.
2. Free movement of persons, goods, capital, and services. It seeks to allow citizens, goods, and factors of production to move freely across member states, including the right of residence and establishment.
3. Harmonisation of economic policies. It aims to co-ordinate and harmonise the economic, industrial, agricultural, monetary, and fiscal policies of member states, including working towards a common currency.
4. Joint development of infrastructure and resources. It promotes the joint development of transport, communications, energy, and other infrastructure, and the shared exploitation of the region's natural resources.
5. Raising the standard of living and promoting economic development. Its overall aim is to accelerate the economic growth and development of the region and improve the welfare and standard of living of its peoples.

(Other acceptable objectives: maintenance of peace, security, and stability in the region; promotion of industrial and agricultural development; and fostering closer relations and unity among member states.)

Maelezo ya Majibu

The twenty incomes (in \$00) are: 30, 20, 50, 40, 60, 40, 40, 50, 20, 60, 80, 40, 20, 20, 70, 40, 70, 30, 40, 80. Their total is \( \sum x = 900 \) (in \$00), that is \$90,000.

(a)(i) Mean income. \[ \bar{x} = \frac{\sum x}{n} = \frac{900}{20} = 45\;(\$00) = \$4{,}500 \]

(a)(ii) Modal income. Arranging the values by frequency, the income 40 (\$4,000) occurs six times, more than any other, so the mode = \$4,000.

(a)(iii) Median income. Arranging in order: 20, 20, 20, 20, 30, 30, 40, 40, 40, 40, 40, 40, 50, 50, 60, 60, 70, 70, 80, 80. With 20 items, the median is the average of the 10th and 11th values, both 40, so the median = \$4,000.

(b) Range. \[ \text{Range} = \text{highest} - \text{lowest} = 80 - 20 = 60\;(\$00) = \$6,000 \]

(c)(i) Flat tax of 7% on all households. Total income \( = \$90,000 \). \[ \text{Tax} = 7\% \times 90{,}000 = \frac{7}{100}\times 90{,}000 = \$6{,}300 \]

(c)(ii) Flat tax of 15% on households earning \$4,000 and above. Households below \$4,000 are those earning \$2,000 (four households) and \$3,000 (two households), a total of \( 4(20) + 2(30) = 80 + 60 = 140 \) (\$00) = \$14,000, which is exempt. Taxable income \( = 900 - 140 = 760 \) (\$00) = \$76,000. \[ \text{Tax} = 15\% \times 76{,}000 = \frac{15}{100}\times 76{,}000 = \$11{,}400 \]