WAEC Economics 1991 (August) past questions and answers

Under the price system (market mechanism), prices signal where resources go, deciding how much goes into consumer and producer goods.

Because resources are scarce we cannot satisfy every want, so we must choose.

Too much money chasing too few goods pushes prices up: inflation.

Equilibrium is where the demand curve D crosses the supply curve S; reading across to the price axis gives OP_o. OQ_o is the equilibrium quantity.

OP₂ is below the equilibrium price: buyers want ON₂ but sellers offer only ON₁, so demand exceeds supply.

Money is worth what it can buy, and that depends on the general level of prices.

Open market operations are the central bank's buying and selling of government securities to change the money supply.

Devaluation is an official cut in the exchange value of a country's currency against foreign currencies.

Balance of payments disequilibrium is any overall deficit or surplus on the current and capital accounts together.

Treasury bills are short-term government borrowing, usually repaid after 91 days (3 months).

A cheque is only an order to a bank to pay money from a deposit; the deposit is money, the cheque is not.

Spending more than revenue (a budget deficit) adds to total demand and expands the economy.

Buying goods for resale is trade, not a reason to move home; the others are common causes of migration.

Middlemen move goods from producers to the places where consumers buy them.

The working (active) population is usually taken as people aged about 15 to 65.

An increase in demand with unchanged supply raises both the equilibrium price and quantity.

At N6.00 quantity demanded (7,000) equals quantity supplied (7,000).

Price falls from N6 to N4: demand rises from 7,000 to 13,000 (a change of 6,000) and supply falls from 7,000 to 3,000 (a change of 4,000).

A horizontal supply curve means any quantity is supplied at price P, but none below it: supply is perfectly (infinitely) elastic.

Specialisation pays only if large output can be sold, so it is limited by the size (extent) of the market.

Serving as a standard for deferred (future) payments is a function; the others are qualities of good money.

Labour productivity rises with better technology and better capital and land to work with; race has nothing to do with it.

Convenience is one of Adam Smith's canons of a good tax: it should be easy and convenient to pay.

NEPA was set up by law and fully owned by government, so it was a public corporation; the others are companies (Plc).

Industries using bulky raw materials locate where those materials grow; oil palms grow well in Bendel.

Capital is in fact scarce in rural areas, so this cannot be an argument for rural location.

(a)(i) 162/360 × 120m = 54 million
(ii) 108/360 × 120m = 36 million
(iii) 90/360 × 120m = 30 million
(b) Dependants = 54m + 36m = 90m (75%), workers only 30m (25%): a very high dependency ratio (3 : 1). Implications:
- Heavy burden on the working population; high taxes.
- Low savings and low investment, so slow growth.
- High government spending on education, health and pensions.
- High demand for goods may cause inflation and more imports, worsening the balance of payments.
- Low standard of living; pressure on social amenities.
- Small labour force limits output.

Angle ÷ 360 × total gives each group.

Completed schedule (TC = AC × output; AC = TC ÷ output; MC = change in TC):
Output 1: TC 8, AC 8, MC –
Output 2: TC 14, AC 7, MC 6
Output 3: TC 18, AC 6, MC 4
Output 4: TC 20, AC 5, MC 2
Output 5: TC 30, AC 6, MC 10
Output 6: TC 48, AC 8, MC 18
(a) AC is lowest (5) at 4 units.
(b) MC is lowest (2) at 4 units.
(c) AC starts rising at 5 units.
(d) MC (10) first exceeds AC (6) at 5 units.
(e) The largest output in the schedule is 6 units (the least-cost or optimum output is 4 units).

Fill in TC first for outputs 3 and 5 using TC = AC × Q.

(a) Change in quantity demanded: caused only by a change in the commodity's own price, other things being equal. Shown as a movement along the same demand curve – down the curve (extension) when price falls, up the curve (contraction) when price rises. Diagram: one demand curve with two points, e.g. price P1 to P2 and quantity Q1 to Q2.
(b) Change in demand: caused by factors other than the good's own price – income, tastes, prices of related goods, population, expectations, taxes. Shown as a shift of the whole curve: to the right (increase, more bought at every price) or to the left (decrease). Diagram: D0 shifting to D1 (right) or D2 (left) at the same price.
Diagrams must have labelled axes (price, quantity) and curves.

Movement along vs shift of the curve.

Median: the middle value when the data are arranged in order of size. For n items it is the ((n + 1)/2)th item; with an even number of items it is the average of the two middle values. E.g. 3, 5, 7, 9, 11 → median 7.
Merits: easy to understand and calculate; not affected by extreme values; can be found graphically (ogive); useful for qualitative data that can be ranked; can be found even when end classes are open.
Demerits: data must first be arranged in order, tedious for large data; ignores the actual values of other items; not suitable for further algebraic treatment; may not be an actual value in the data (even number of items); less reliable with small or irregular data.

Define with an example.

Any five, explained:
1. Supplies raw materials to industries (cocoa, cotton, rubber, palm oil, groundnuts, hides).
2. Provides food for the industrial workforce.
3. Provides a market for industrial products (fertilisers, tools, machines, chemicals).
4. Earns foreign exchange used to import machinery for industries.
5. Provides capital/savings and government revenue used to set up industries.
6. Releases labour to industry as farming becomes more efficient.

Five points, each explained.

(a) Mobility of labour is the ease with which labour moves from one place to another (geographical mobility) or from one job/occupation to another (occupational mobility), including from one grade to another (vertical mobility).
(b) Reasons for unwillingness to move:
1. Family and social ties.
2. Cost of moving and of housing in the new place.
3. Language, cultural and religious differences.
4. Lack of information about jobs elsewhere.
5. Long period and cost of training for a new occupation.
6. Age – older workers are less willing.
7. Insecurity, political instability, discrimination.
8. Climate and unfamiliar environment.
9. Love of present job, seniority and pension rights.
10. Trade union and professional restrictions.

Define both types of mobility.

Factors:
1. Size of the population.
2. Age structure – proportion of working-age people.
3. School-leaving age and length of education.
4. Retirement age.
5. Number of women in the labour force (social and religious attitudes).
6. Wage rate – higher wages attract more workers.
7. Hours of work and working conditions.
8. Health of the population.
9. Migration (immigration and emigration).
10. Attitude to work, leisure and unemployment benefits.
11. Number of disabled/invalid people.

Explain each factor.

(a) A market is any arrangement by which buyers and sellers are brought into contact to exchange goods and services at a price; it need not be a particular place.
(b) Any four:
1. Many buyers and sellers – no one can influence price.
2. Homogeneous (identical) products.
3. Perfect knowledge of market conditions by buyers and sellers.
4. Free entry and exit of firms.
5. One uniform price throughout the market.
6. Perfect mobility of factors of production.
7. No transport costs and no government interference.
8. No preferential treatment or advertising.

Explain, not just list, the four.

Factors:
1. Birth rate – affected by early marriage, polygamy, culture and religion, desire for large families, illiteracy, little use of family planning.
2. Death rate – affected by medical facilities, sanitation, nutrition, epidemics, wars and disasters.
3. Migration – immigration increases population, emigration reduces it.
4. Government policy – population control, incentives.
5. Standard of living and level of education.
6. Infant and maternal mortality.
7. Natural disasters, famine and war.

Population = births − deaths ± net migration.

Efforts:
1. Tight monetary policy: higher bank rate/MPR, open market sales, higher reserve and liquidity ratios, credit ceilings.
2. Fiscal measures: cutting government spending, raising taxes, reducing deficits.
3. Price control and anti-hoarding laws.
4. Wage control / incomes policy.
5. Increasing local production of food and goods (Operation Feed the Nation, Green Revolution, agricultural loans).
6. Liberal import of essential goods and reduction of duties.
7. Improving transport and distribution.
8. Encouraging savings.

Group measures into monetary, fiscal and direct controls.