50 questions. Try each one, then open the answer to check yourself and read the explanation.
The basic economic problems of the society include
Answer: A (what to produce, how and for whom)
Every society must decide what goods to produce, how to produce them and for whom.
Opportunity cost is an economic concept which describes the
Answer: C (sacrifice made for the satisfaction of a want)
Opportunity cost is the next best alternative given up (sacrificed) to satisfy a want.
If the marginal propensity to consume is 0.80 and the investment expenditure changes from N100 million to N140 million in a given economy, find the level of equilibrium in the given economy, using the formula K = 1/(1 − MPC) (K = Multiplier; MPC = Marginal Propensity to Consume)
Answer: D (N200 million)
K = 1 ÷ (1 − 0.8) = 5. Investment rises by N40 million, so income rises by 5 × 40 = N200 million.
The circular flow of income defines the
Answer: C (flow of goods, services and money among the various macro-sectors of the economy)
The circular flow shows goods, services, factors and money moving between households, firms, government and the foreign sector.
The necessity of choice is due to the fact that
Answer: A (human wants are insatiable)
Because wants are unlimited while means are limited, people cannot have everything and must choose.
The graph above represents a production function. At which of the points does diminishing returns set in?
Answer: B (J)
Up to J the curve gets steeper (rising marginal product); after J it bends over, so each extra unit adds less: diminishing returns begin at J. K is where total output peaks.
In a mixed economy, decisions to produce are taken by
Answer: D (private individuals, organizations and the government)
A mixed economy has both a private sector and a public sector, so production decisions are made by private persons and firms as well as by government.
Every economy requires an accurate census because it assists in
Answer: B (providing a sound framework for policy formulation)
Accurate population figures give government a sound basis for planning and making policy.
The population of country X in 1990 was 35 million. The births were 450,000 while it recorded 210,000 deaths. If in the same year, its immigrants were 20,000 and 10,000 of its citizens left the country, calculate the total population of the country at the end of 1990.
Answer: D (35,250,000)
35,000,000 + 450,000 − 210,000 + 20,000 − 10,000 = 35,250,000.
If the actual population in a country is less than the optimum population, then
Answer: A (it is desirable to have a larger population)
Below the optimum the country is underpopulated: more people would raise output per head, so a larger population is desirable.
Unemployment can be reduced by
Answer: C (adopting labour-intensive techniques of production)
Labour-intensive methods use more workers per unit of output, so they create more jobs.
Production possibility curve of country Y. If the economy of the country is operating at X, the implication is that
Answer: B (the productive capacity is not being fully utilized)
X lies inside the curve, so the economy could produce more of both goods: some resources are idle or wasted.
When the Total Product (TP) is at maximum point, the Marginal Product (MP) and the Average Product (AP) respectively are
Answer: A (zero and decreasing)
TP stops rising when the extra unit adds nothing, so MP = 0; AP is already falling at that point.
In the long run, all production factors are
Answer: C (variable)
The long run is a period long enough for the firm to change the quantity of every factor.
A company's expenditure on raw materials is regarded as
Answer: A (explicit cost)
Money actually paid out to buy inputs such as raw materials is an explicit cost; implicit costs are the owner's own resources used without payment.
The basic relationship between the cost of production and the market price of any commodity in the short run is that the market price
Answer: B (reflects the variable, but not the fixed cost of production)
In the short run a firm stays in business if price covers its variable costs; fixed costs must be paid anyway, so price need not cover them.
A firm determines its profits when it studies its
Answer: D (Average Cost relative to price in the market)
Profit per unit is price minus average cost, so the firm compares its average cost with the market price.
An increase in the supply of labour in a factory while other things remain equal will lead to
Answer: D (a decrease in the wage rate and an increase in employment)
More labour supplied shifts the supply curve to the right: the wage falls and more workers are hired.
A demand which is positively related to price is true of
Answer: B (giffen goods)
For a Giffen good, a rise in price leads to more being demanded, so demand moves in the same direction as price.
Price (N); quantity demanded; quantity supplied:
10; 50; 450
20; 150; 350
30; 250; 250
40; 350; 150
50; 450; 50
What is the equilibrium quantity?
Answer: B (250)
At N30 quantity demanded (250) equals quantity supplied (250), so the equilibrium quantity is 250.
Above the equilibrium point, a further rise in price tends to
Answer: D (decrease demand and increase supply)
A higher price makes buyers take less and sellers offer more.
Price (N); quantity sold:
5; 15
5; 16
5; 17
5; 18
From the table above, marginal revenue is
Answer: A (N5)
Each extra unit sells at the same price of N5, so it adds N5 to total revenue: MR = N5.
Elasticity of demand is an effective tool in the hands of a producer in that it enables him
Answer: D (set his price to maximize his profit)
Knowing how buyers react to price changes tells the producer whether raising or lowering price will increase revenue and profit.
Cross elasticity of demand can be mathematically expressed as the
Answer: C ((percentage change in quantity demanded of commodity X) ÷ (percentage change in price of commodity Y))
Cross elasticity measures how demand for X responds to a change in the price of another good Y.
The basic idea behind brand differentiation under an imperfect market arrangement is to
Answer: B (create demand for the particular product)
By making its brand look different, a firm builds loyal customers for its own product.
In the long run, a firm in a perfectly competitive market will make
Answer: A (normal profit)
Free entry and exit remove any supernormal profit or loss, leaving only normal profit.
Output restriction, fixing of prices, creating obstacles to free entry into the market are features of
Answer: A (pure monopoly)
A monopolist controls supply, so he can restrict output, set price and block new firms.
A major shortcoming of the sole proprietorship form of business is lack of
Answer: C (continuity)
The business depends on one person, so it may end when the owner dies or falls ill.
In the event of liquidation of a private limited liability company, the shareholders' liability is limited in their total
Answer: D (investment in the company)
With limited liability a shareholder can lose only the amount he has put into the company's shares.
The major factor that causes fluctuations in the supply of agricultural produce is
Answer: C (weather variations)
Farm output depends heavily on rainfall and other weather conditions, which change from year to year.
The system of agricultural practice which involves hunting, gathering and growing of food crops for family consumption only is described as
Answer: D (subsistence farming)
Producing only enough for the family's own use, with nothing for sale, is subsistence farming.
What is the term used to describe a policy aimed at promoting the local production of goods which are usually imported?
Answer: B (Import substitution)
Import substitution means making at home the goods that were formerly imported.
Labour-intensive strategy of industrialization emphasizes the use of
Answer: B (manual method of production)
Labour-intensive production relies mostly on workers (manual methods) rather than machines.
Petroleum is the mainstay of the Nigerian economy because it is the
Answer: A (main foreign exchange earner)
Oil earns most of Nigeria's foreign exchange and government revenue.
An indigenous company wholly owned by the federal government of Nigeria which currently engages in prospecting for oil is
Answer: D (the Nigerian National Petroleum Corporation)
The NNPC is the state oil corporation, fully owned by the Federal Government, and takes part in oil exploration and production.
An increase in both the legal reserve ratio and discount rate has the effect of
Answer: B (decreasing the quantity of money in circulation)
Banks must keep more reserves and borrowing from the Central Bank costs more, so they lend less and money supply falls.
Inflation in the Nigerian economy may be fuelled by increase in
Answer: C (government expenditure)
More government spending adds to aggregate demand and pushes prices up.
Gresham's law in Economics shows that
Answer: B (bad money drives out good money)
When good and debased coins circulate together, people hoard the good ones and spend the bad, so bad money drives good money out of circulation.
Monetary policy aimed at reducing demand-pull inflation in the country may be carried out through
Answer: B (increase in cash reserve ratio of commercial banks and the sale of government securities)
Monetary policy works through money and credit: raising the cash reserve ratio and selling securities (open market operations) reduce the money supply.
Progressive tax structure is designed to
Answer: B (take more from the income of the rich)
Under a progressive tax the rate rises with income, so the rich pay a larger share.
Taxes and government expenditures are instruments of
Answer: D (fiscal policy)
Fiscal policy is the use of government taxation and spending to influence the economy.
The national income of a country indicates that the gross national income was N17 700 million and gross domestic product was N16 800 million. The difference of N900 million represents
Answer: C (net income from abroad)
GNP − GDP = net factor income from abroad, so the N900 million is net income from abroad.
If national income rises by 6% and population rises by 3%, per capita income will
Answer: D (rise by 3 per cent)
Income per head grows by roughly the growth of income minus the growth of population: 6% − 3% = 3%.
One of the ways by which the government can speed up economic development is through the
Answer: B (encouragement of savings, investment and equitable distribution of goods and services)
Savings fund investment, investment raises output, and fair distribution spreads the gains, all of which promote development.
A sustained increase in the production of goods and services in a country is called economic
Answer: B (growth)
A continued rise in real output (GDP) is economic growth.
One of the techniques for rectifying a deficit balance of payment is
Answer: B (devaluation)
Devaluation makes exports cheaper and imports dearer, which helps to close a deficit.
The main objective of the Economic Community of West African States is to
Answer: D (promote the free movement of persons, goods and services within the sub-region)
ECOWAS was formed mainly to promote economic integration through free movement of people, goods and services.
In international trade, shipping and other freight charges are treated as
Answer: A (invisible items)
Shipping and freight are services, not goods, so they are invisible items.
A situation in which a commodity is sold abroad below its cost of production in the home country is known as
Answer: A (dumping)
Selling goods abroad below their cost or home price is dumping.
The borrowing rights of a member country of the International Monetary Fund are determined by
Answer: C (its quota to the fund)
Each member's quota (subscription) to the IMF fixes how much it can borrow and its voting power.