WAEC Economics 1988 past questions and answers

In Robbins' definition the 'ends' are the wants people want to satisfy, while the 'scarce means' are the resources used to satisfy them.

The occupational distribution shows how many people work in each industry. Comparing it from one period to another shows which industries are growing and which are becoming less important.

In a free market, price is set where the forces of demand and supply meet (equilibrium), not by one side alone.

In a free market economy, consumers' spending decides what is produced (consumer sovereignty), so the consumer is 'king'.

The IMF deals with exchange rates, balance of payments support and loans to member countries, so it is a financial organisation.

A normal demand curve slopes downward from left to right and bows in towards the origin, i.e. it is convex to the origin.

A demand schedule is a table listing the quantities of a commodity demanded at different prices.

Per capita income is the national output divided by the population; the key uses GNP ÷ P.

Dependants are 0-15 and 61+: 10,000 + 2,000 = 12,000. Working age is 3,000 + 5,000 = 8,000. 12,000 : 8,000 = 3 : 2.

A firm is in equilibrium (maximising profit) where marginal cost equals marginal revenue.

Distorting the price mechanism is a disadvantage of price control; the other options are its aims or benefits.

A change in the good's own price causes a change in quantity demanded (a movement along the curve), not a change in demand (a shift).

Government fixes maximum or minimum prices only for certain selected goods and services it considers important.

When A becomes dearer, people buy less A and therefore less of B which goes with it, so they are complementary (jointly demanded) goods. Substitutes would see demand for B rise.

With inelastic demand, quantity changes proportionately less than price, so cutting the price lowers total revenue.

The basic economic problems are what, how and for whom to produce, and growth; equal distribution is not one of them.

The US dollar is the main reserve currency and the chief currency in which IMF credits were granted.

In 1988 most of Nigeria's crude oil came from the Niger Delta states of Rivers and Bendel.

The most he can pay is the marginal revenue product: 100kg × ₦2.00 = ₦200.00.

The indigenisation decrees aimed to transfer ownership and control of businesses to Nigerians so they take full part in the economy.

Private ownership of the means of production is the main feature of a capitalist economy.

A sole proprietorship is run by one person who takes decisions alone, so 'decisions taken by 10 people' is not a feature.

Malthus argued that population grows geometrically while food grows arithmetically, so population outruns food supply. Option C has the two the wrong way round.

Cash is already money, so it is the most liquid of all assets.

Terms of trade = (index of export prices ÷ index of import prices) × 100, i.e. a ratio of export to import price indices.

Comparative advantage shows that trade pays even when a country has no absolute advantage, so C contradicts the law.

If the market is small, extra output cannot be sold, so a firm has no reason to expand.

Domestic trade uses one currency, but international trade involves different currencies, so this is where they differ.

The drawer is the account holder who writes and signs the cheque; the payee receives the money and the drawee is the bank.

Interest on loans is a recurrent expenditure; the others create lasting assets and are capital expenditure.

OPEC does not drill or refine; it sets production quotas and prices, i.e. it influences the marketing of members' oil.

Elasticity is zero when quantity demanded does not change at all as price changes, i.e. perfectly inelastic demand.

External economies are benefits a firm gets from the growth of the whole industry, especially when firms are localised together (shared skilled labour, services, roads).

With inelastic demand buyers keep buying at a higher price, so most of the tax can be passed on to the consumer.

In the late 1980s Nigeria's main cash crops for export were cocoa, rubber, coffee and palm kernel.

Using taxes and government spending to influence the economy is fiscal policy.

Revenue allocation principles include need, population, derivation and national development, but not the number of industries.

MPC = change in consumption ÷ change in income, i.e. the share of extra income that is spent.

A subsistence farmer produces mainly to feed himself and his family, with little left for sale.

(a)(i) Change in quantity = 20 − 16 = 4kg; 4/20 × 100 = 20% (a fall)
(ii) Change in price = ₦7 − ₦5 = ₦2; 2/5 × 100 = 40% (a rise)
(iii) e = % change in quantity ÷ % change in price = 20 ÷ 40 = 0.5
(b)(i) Demand is inelastic.
(ii) The coefficient (0.5) is less than one: quantity changed proportionately less than price.

Always divide the change by the original (January) figure.

(a) MR = change in TR ÷ change in output; MC = change in TC ÷ change in output
F = (450 − 350)/(40 − 30) = 100/10 = ₦10
M = (550 − 500)/(50 − 40) = 50/10 = ₦5
X = (630 − 600)/(70 − 60) = 30/10 = ₦3
(b)(i) Profit is maximised where MR = MC with MC rising. At 50kg MR = MC = ₦5, but output should go on to 60kg because MR (₦5) is still above MC (₦3); beyond 60kg MC (₦12) exceeds MR (₦3). Profit (TR − TC) is highest at 60kg: 600 − 580 = ₦20. (Credit 50kg where MR = MC is shown.)
(ii) Under perfect competition price = MR = MC, so price would be ₦5.

Under perfect competition P = AR = MR.

Uses of national income figures (any well-explained points):
1. Measure economic growth: shows whether total output is rising or falling over time.
2. Measure standard of living: per capita income = national income ÷ population.
3. Compare countries' living standards and performance.
4. Economic planning: government uses the figures to set targets and plan.
5. Compare sectors: shows the contribution of agriculture, industry, services etc.
6. Show income distribution, guiding tax policy.
7. Guide investors on where and whether to invest.
8. Basis for international aid, loans and contributions to bodies like the UN and IMF.
9. Forecasting future trends in the economy.

Explain each use in a sentence; a bare list scores less.

(a) Malthus (Essay on the Principle of Population, 1798):
- Population, if unchecked, grows in geometric progression (1, 2, 4, 8, 16…), roughly doubling every 25 years.
- Food supply grows only in arithmetic progression (1, 2, 3, 4, 5…) because of diminishing returns on land.
- Population will therefore outrun food supply.
- Positive checks (famine, disease, war) will bring population down.
- He urged preventive checks: late marriage, moral restraint/abstinence.
(b) Validity for Nigeria:
- Valid in part: rapid population growth, food shortages and imports, high food prices, poverty, rural-urban drift and unemployment.
- Not fully valid: improved technology (fertilisers, improved seeds, mechanisation) can raise food output faster than he expected; food can be imported; family planning and education reduce birth rates; Malthus ignored such progress.

Give both sides in (b).

(a) Demand-pull inflation is a persistent rise in the general price level caused by aggregate demand exceeding aggregate supply – 'too much money chasing too few goods' (e.g. from wage increases, government spending, credit expansion).
(b) Price control is unsuitable because:
- It treats the symptom (high prices), not the cause (excess demand).
- Fixed low prices raise quantity demanded further while discouraging supply, so shortages worsen.
- It leads to black markets, hoarding and smuggling.
- It is hard and costly to enforce.
- Better remedies cut demand: higher taxes, less government spending, tighter credit, higher interest rates.

Link the remedy to the cause: reduce demand.

Government measures (any well-explained points):
1. Provision of infrastructure: roads, electricity, water, communication.
2. Industrial estates and export processing zones.
3. Tax holidays (pioneer status) and other tax reliefs.
4. Protection of infant industries through tariffs and import bans.
5. Credit through development banks (e.g. NIDB, NBCI) and SME schemes.
6. Indigenisation policy to increase Nigerian participation.
7. Direct government investment in industries (steel, refineries, fertiliser).
8. Training of manpower, research institutes and technical schools.
9. Encouraging foreign investment and joint ventures.

Name the measure, then say how it helps industry.

(a) Liquidity ratio: the proportion of a commercial bank's deposits that it must keep in cash and liquid assets (cash, call money, treasury bills). Fixed by the central bank; raising it reduces banks' ability to lend.
(b) Fixed deposits (time deposits): money kept with a bank for a fixed period; earns a higher interest rate; cannot be withdrawn by cheque and normally needs notice or loses interest if withdrawn early.
(c) Money market: the market for short-term loans and funds (usually under one year); dealers include the central bank, commercial and merchant banks, discount houses; instruments include treasury bills, call money, commercial bills and certificates of deposit.

Two or three clear facts per note.

Reasons:
1. Colonial ties: trade links set up with former colonial powers continue.
2. Similar products: West African countries produce similar primary goods, so they have little to sell to each other.
3. Need for manufactured and capital goods available only in Europe and America.
4. Europe and America provide large markets and better prices for raw materials.
5. Poor transport and communication links between African countries.
6. Different currencies and lack of convertibility within Africa.
7. Trade barriers, tariffs and political instability among African states.
8. Aid, loans and investment from Western countries tied to trade with them.

Colonial history and similar exports are the key points.

Roles of agriculture:
1. Provides food for the growing population.
2. Provides raw materials for industries (cocoa, cotton, rubber, palm oil).
3. Major source of employment.
4. Earns foreign exchange through exports.
5. Source of government revenue (taxes, export duties).
6. Provides a market for industrial goods (fertilisers, tools).
7. Source of income and savings for capital formation.
8. Contributes a large share of national income (GDP).

Explain at least five roles.

(a) Objectives: co-ordinate and unify members' petroleum policies; secure fair and stable oil prices; regulate output through quotas; ensure a steady income for members; ensure regular supply to consumers; protect members' interests against oil companies and consuming nations.
(b) Problems: members exceed quotas, causing a glut; price falls; competition from non-OPEC producers; development of alternative energy; political disagreements and wars among members; dependence on Western technology and markets.
(c) Remedies: fixing and revising production quotas; monitoring members' output; reducing output to raise prices; negotiations with non-OPEC producers; regular ministerial meetings to settle disputes.

Answer each part separately.