45 questions. Try each one, then open the answer to check yourself and read the explanation.
Which of the following situations can give rise to economic problems?
Answer: C (Limited means available for satisfying wants)
The economic problem arises because the resources for satisfying wants are limited (scarce) while wants are many.
Scale of preference refers to
Answer: C (list of goods and services in order of priority)
A scale of preference is a list of wants arranged in order of importance, so the most pressing are satisfied first.
For an economy which last year produced only two commodities X and Y, the real cost of the quantity of X which it produced can be measured by the
Answer: C (total amount of Y it could have produced)
The real (opportunity) cost of X is the amount of Y the economy gave up, i.e. the Y it could have produced with the resources used for X.
Which of the following is applicable in a wholly capitalist economy?
Answer: C (The price mechanism allocates resources)
In pure capitalism there is no government direction; prices set by demand and supply decide how resources are used.
Age group (years): distribution (%)
Above 60: 30
15 – 60: 45
0 – 14: 25
The estimated dependency ratio of the population distribution shown above is
Answer: A (11 : 9)
Dependants = 30 + 25 = 55%; working age = 45%. Dependency ratio = 55 : 45 = 11 : 9.
Population (million): food production (million tonnes)
50: 220
70: 210
90: 225
100: 275
In the data above, what is the optimum population in million?
Answer: A (50)
Food per person is 220/50 = 4.4, 210/70 = 3, 225/90 = 2.5 and 275/100 = 2.75 tonnes. It is highest at 50 million, the optimum population.
The major objective of the current campaign for family planning in Nigeria is to
Answer: D (raise the standard of living of the population)
Family planning aims at smaller families that parents and the nation can feed, educate and care for, i.e. a higher standard of living.
The migration of young people from rural to urban areas in Nigeria should help to raise the
Answer: C (marginal productivity of labour in the rural areas)
When surplus workers leave the overcrowded farms, each remaining worker has more land to work with, so the marginal product of rural labour rises; in the towns extra workers lower it.
By definition, variable costs (VC) is related to total costs (TC) and fixed costs (FC) by the equation
Answer: B (VC = TC − FC)
TC = FC + VC, so VC = TC − FC.
The higher the price of capital relative to the price of labour, the more production techniques should be
Answer: A (labour-intensive)
A firm uses more of the factor that is relatively cheap; if capital is dear, it uses more labour.
The U-shape of the long run average cost curve can be explained by the
Answer: D (concepts of economies and diseconomies of scale)
In the long run all inputs vary; LRAC falls at first because of economies of scale and later rises because of diseconomies of scale.
Quantity of singlets: short-run total costs (N)
0: 1,000
10: 1,200
20: 1,400
30: 1,600
40: 1,800
The short-run total costs for different levels of output for a firm producing singlets are shown above. Calculate the variable cost per unit at an output of 20
Answer: D (N20)
Fixed cost is the cost at zero output, N1,000. At 20 units variable cost = 1,400 − 1,000 = N400, so per unit it is 400 ÷ 20 = N20.
The price mechanism is more effective in achieving efficient performance of the economy than the planning mechanism because of the
Answer: A (role of supply and demand)
Prices formed by demand and supply automatically signal what people want and direct resources there, without the delays of planning.
If demand is relatively inelastic and sellers are able to raise the price of their commodity, then there will be a
Answer: B (fall in the quantity demanded and a rise in total revenue)
With inelastic demand, quantity falls by a smaller percentage than price rises, so sales fall a little but total revenue rises.
If in the graph above, it is assumed that the price is initially P1, it can be deduced that price will
Answer: A (fall because there is a surplus)
P1 is above the equilibrium price Pc, so quantity supplied exceeds quantity demanded; the surplus pushes price down.
The demand curve for a normal good will shift to the left if
Answer: C (the prices of complementary goods rise)
If complements become dearer, people buy fewer of them and less of this good at every price, so demand shifts left. A change in the good's own price only moves along the curve.
In the diagram above, the profit maximizing output is
Answer: B (Q1 while I = MC and II = AC)
Curve I is steeper and passes through the lowest point of II, so I is MC and II is AC. Profit is maximised where MR cuts MC, at output Q1.
A firm with marginal cost equal to its marginal revenue will produce the equilibrium output if it is in
Answer: D (any type of market)
MC = MR is the profit-maximising rule for every firm, whatever the market structure.
The main handicap of sole proprietorship is
Answer: D (inadequate capital)
A sole trader depends on his own savings and small loans, so shortage of capital limits the business.
The type of business organizations mostly used for producing public goods in Nigeria is
Answer: D (statutory corporations)
Public utilities such as power, water and railways are run by statutory corporations set up by law.
The main reason for the current programme of privatization and commercialization of public enterprises in Nigeria is to
Answer: B (encourage efficiency in the performance of such enterprises)
Public enterprises were inefficient and loss-making; selling them or running them commercially is meant to make them efficient.
Farmers' income may fall if they produce more cash crops for export because
Answer: A (foreign demand is inelastic)
With inelastic demand, more supply causes a large fall in price, so total earnings fall.
Under the Nigerian Structural Adjustment Programme, the marketing of agricultural commodities in Nigeria has been placed under
Answer: D (private investors and individuals)
SAP abolished the commodity boards and left the marketing of crops to private buyers.
The primary barrier to land reform in developing countries is the
Answer: A (frequent opposition by the landlords)
Land reform takes land from the big owners, who are powerful and resist it.
Firms are often set up close to each other in order to take advantage of
Answer: D (external economies of scale)
When firms cluster they share services such as skilled labour, suppliers and infrastructure; these benefits from outside the firm are external economies of scale.
The consumer-goods industry is predominant in the industrial sector of the Nigerian economy because of the
Answer: A (availability of market and most of the raw materials required)
There is a large home market for consumer goods and many of their raw materials are found locally, so such industries are easy to start.
A significant effect of the growth of the oil sector in Nigeria has been to
Answer: B (diminish the percentage contribution of the agricultural sector to GNP)
As oil output and earnings grew, agriculture's share of national output fell sharply.
Because most of her crude oil is exported, the foreign exchange earnings and the forward linkage effects Nigeria realizes from her oil production are
Answer: B (respectively high and low)
Exporting crude earns much foreign exchange, but little is refined or processed at home, so forward linkages are weak.
Which of the following is NOT directly concerned with dealings in treasury bills?
Answer: A (The stock exchange)
Treasury bills are short-term money-market instruments issued by the Central Bank and traded by banks and discount houses; the stock exchange deals in long-term securities.
Monetization refers to the ratio of
Answer: D (money in circulation to total income)
The book takes monetization as the ratio of money in circulation to national income, a measure of how much the economy uses money.
The best way to reduce the supply of money in the economy is to
Answer: A (increase the liquidity ratio)
A higher liquidity ratio forces banks to keep more assets idle, so they lend and create less money.
The total amount of money in circulation includes cash
Answer: A (and current account balances owned by the non-bank public)
Money supply counts currency and current (demand) deposits held by the non-bank public; cash held by banks is not in circulation.
To reduce the high rate of inflation in the economy, the Government should
Answer: A (increase taxes and have a budget surplus)
Higher taxes and spending less than revenue take money out of the economy, which reduces demand and inflation.
When interest rates are high and still rising the least-cost method used by public limited companies to obtain additional funds for their operations is by
Answer: D (selling new ordinary shares to the general public)
Shares carry no fixed interest, so selling them avoids the high and rising cost of borrowing.
The objective of public finance is to promote
Answer: A (full employment, national income and price stability)
Government uses taxes and spending to achieve full employment, growth of national income and stable prices.
An account from which allocations are made to the three tiers of government in Nigeria is called the
Answer: C (Federation Account)
Federally collected revenue is paid into the Federation Account and shared among federal, state and local governments.
Year 1: GNP at current prices N20,000m; population 20 million
Year 2: GNP at current prices N27,000m; population 24 million
What is the percentage increase in GNP between year 1 and year 2?
Answer: D (35.0%)
Increase = 27,000 − 20,000 = 7,000; 7,000 ÷ 20,000 × 100 = 35%.
Year 1: GNP at current prices N20,000m; population 20 million
Year 2: GNP at current prices N27,000m; population 24 million
Calculate the GNP per head of the population in year 1 and year 2.
Answer: D (N1000.00; N1125.00)
Year 1: 20,000m ÷ 20m = N1,000. Year 2: 27,000m ÷ 24m = N1,125.
In national income accounting, aggregate saving in any year is defined as
Answer: A (all disposable income not spent on consumption)
Saving is the part of disposable income not spent on consumption, wherever it is kept.
Which of the following combinations is a veritable set of development indicators?
Answer: D (Low infant mortality and high per capita income and literacy rates)
A developed society has few infant deaths, high income per head and a literate population.
If a country has a balance of payment crisis, which of the following measures can best bring about an improvement in the short run?
Answer: C (Large-scale export of locally made goods)
Exporting more brings in foreign exchange and reduces the deficit; the other options send money out.
The terms of trade of a country is defined as
Answer: D ((index of export prices ÷ index of import prices) × 100)
Terms of trade = (index of export prices ÷ index of import prices) × 100.
When a foreigner on a visit to Nigeria pays for hotel accommodation and meals with some foreign currency, the amount paid should be recorded in Nigeria's balance of payments as an item of
Answer: A (Nigeria's invisible export trade)
Services sold to foreigners (tourism) earn foreign exchange but involve no goods crossing the border, so they are invisible exports.
The Nigerian Trust Fund is managed on behalf of Nigeria by the
Answer: C (African Development Bank)
Nigeria set up the Nigeria Trust Fund in 1976 and the African Development Bank manages it to give soft loans to poorer African countries.
One of the gains by member states of the Economic Community of West African States is
Answer: B (trade creation)
Removing trade barriers among members lets cheaper producers within the region replace dearer ones, creating new trade.