WAEC Economics 1992 past questions and answers

A social science studies human behaviour in society; economics studies how people behave in using scarce resources.

Scarcity means resources are limited compared with the wants they must satisfy.

Opportunity cost is the real cost of a choice – the next best alternative given up.

Above equilibrium, sellers offer more but buyers want less, so there is excess supply (a surplus).

The usual qualities of good money are relative scarcity, durability, divisibility, homogeneity, portability and acceptability; the key treats 'mobility' as not one of them.

Points on the PPC show the maximum output when all resources are fully and efficiently employed.

Market price is set where demand and supply meet.

Economic growth is the rise over time in a country's real output (real GDP).

Butter and margarine are substitutes; dearer margarine raises demand for butter, so its price and quantity both rise.

As a unit of account (measure of value), money lets us state the worth of every good as a price.

Emigration means people leave the country, which reduces population.

Shareholders' share of company profit is paid as dividends.

Near money (e.g. treasury bills, savings deposits, bills of exchange) is not money itself but can quickly be turned into money.

Price falls from 10 to 8 (20%) while quantity rises from 20 to 30 (50%); quantity changes more than price, so demand is elastic. Total revenue also rises from 200 to 240.

Borrowers gain because they repay with money worth less; this is not a harm to them.

The demand curve shifts from D_o to D₁ (to the right): at the same price P more is demanded (Q₂ instead of Q₁), an increase in demand.

Under a proportional tax everyone pays the same percentage whatever their income.

In most West African countries taxes on goods (import, export and excise duties, sales taxes) bring in more than direct taxes.

Agriculture supplies local industries too, so 'only for foreign industries' is false.

The poor spend a larger share of their income on essentials, so such taxes take more of their income.

A change in supply is a shift of the whole curve – right for an increase, left for a decrease.

When a bigger share of the population is in productive work, total output (GNP) rises.

Only a perfect competitor has P = AR = MR, so its profit-maximising point MC = MR also equals price.

Government fixing of maximum or minimum prices by law is price control.

Narrow money supply = currency held by the public + demand deposits.

Banker to the government is a central bank function.

With the same 200 labour days, country I makes more cocoa (600 > 300) and more textiles (900 > 800), so it has an absolute advantage in both.

When rising demand pulls prices up, it is demand-pull inflation.

Indirect taxes are placed on goods and services and paid through their prices.

Land is not made by man; it is a free gift of nature, unlike labour effort, capital and enterprise.

Totals: 1984 = 205; 1985 = 240; 1986 = 250; 1987 = 425; 1988 = 380 (₦m)
Draw one bar per year on the horizontal axis; vertical axis in ₦m with a suitable scale (e.g. 2 cm to ₦50m) up to at least 425.
Each bar's height = the year's total, divided into three components stacked in the same order every year: savings at the bottom, current next, fixed deposit on top (e.g. 1984: 0–100 savings, 100–165 current, 165–205 fixed deposit).
Shade/colour each component differently and give a key, title, axis labels and scale.

Same component order and shading in every bar.

(a) Price elasticity of demand is the degree of responsiveness of quantity demanded to a change in price; measured as % change in quantity demanded ÷ % change in price.
(b) % change in quantity = (30 − 20)/20 × 100 = 50%
% change in price = (8 − 6)/8 × 100 = 25%
Elasticity = 50 ÷ 25 = 2
Since 2 > 1, demand is elastic.

Use the original price and quantity as the base.

Normally (law of demand) more is bought at lower prices: substitution and income effects, diminishing marginal utility, new buyers enter at lower prices – so the curve slopes down from left to right.
Exceptions (abnormal/upward-sloping demand curves):
1. Giffen goods – inferior staples of the very poor; a rise in price makes them buy more.
2. Goods of ostentation/prestige (Veblen goods) – bought more when dearer.
3. Expectation of further price rises – people buy more now as price rises.
4. Speculative buying (e.g. shares).
5. Ignorance – consumers judge quality by price.
6. Necessities in times of scarcity/emergency.
A diagram of an upward-sloping (regressive) demand curve earns credit.

State the normal case first, then the exceptions.

(a) Factors encouraging division of labour: increased output and productivity; saving of time (no moving between tasks); skill improves through repetition; use of machines; workers placed where their talents suit; lower cost per unit; makes large-scale production possible; easier training of workers.
(b) Limiting factors: size of the market (main limit); nature of the product (custom-made goods, art); scarce capital; small scale of production; shortage of skilled labour; nature of the job (agriculture is seasonal); poor transport and communication; low level of technology.

Market size is the key limit.

Types (each with features, merits/demerits):
1. Shifting cultivation – farmer moves to new land when soil fertility falls; low output.
2. Bush fallowing / land rotation – land left to rest and farmer returns later.
3. Subsistence (peasant) farming – small farms, crude tools, family labour, output for family use.
4. Commercial farming – large scale, mechanised, for sale/export.
5. Plantation agriculture – large estates of one cash crop (rubber, oil palm, cocoa).
6. Mixed farming – crops and livestock on the same farm.
7. Nomadic herding / pastoralism – cattle moved in search of pasture (northern savanna).
8. Mono-cropping and mixed cropping; continuous cultivation near towns; cooperative and government farms.

Describe each system with an example.

Ways:
1. Provision of infrastructure: roads, power, water, telecommunication.
2. Industrial estates and export processing zones.
3. Tax incentives: pioneer status, tax holidays, capital allowances.
4. Tariff protection and import bans for infant industries.
5. Development banks and credit schemes (NIDB, NBCI, SME schemes).
6. Indigenisation and local raw material sourcing policies.
7. Direct investment in heavy industries (iron and steel, petrochemicals).
8. Manpower training and research institutes.
9. Encouraging foreign investment, joint ventures and Structural Adjustment reforms.
10. Export promotion schemes.

Outline – brief points, each explained in a line.

Problems of middlemen:
1. Poor transport and communication networks.
2. Inadequate storage facilities; perishable goods spoil.
3. Lack of capital and credit facilities.
4. High taxes, levies and multiple charges.
5. Government price controls and policies.
6. Bad debts from customers given credit.
7. Competition from producers selling directly and from other middlemen.
8. Insecurity – theft and armed robbery.
9. Fluctuations in prices and supply; risks of loss.
10. Poor power supply and high operating costs.

Explain each problem.

Solutions:
1. Provide social amenities in rural areas: electricity, water, schools, hospitals, roads.
2. Create jobs in rural areas; locate industries there.
3. Improve agriculture: credit, inputs, mechanisation, good prices, so farming pays.
4. Rural development programmes and cooperatives.
5. Even development and decentralisation of government projects.
6. Reduce the gap between urban and rural incomes.
7. Promote cottage and small-scale industries.
8. Public enlightenment about life in the cities.

Make rural life more attractive.

Activities:
1. Good transport network: roads, railways, waterways.
2. Adequate storage and warehousing facilities.
3. Efficient communication systems.
4. Banking and credit facilities for traders.
5. Insurance to cover risks.
6. Advertising and market information.
7. Standardisation, grading and packaging.
8. Cooperative marketing societies.
9. Peace, security and stable government policies.
10. Reduction of levies and checkpoints.

Aids to trade are the key idea.

Measures:
1. Devaluation – makes exports cheaper and imports dearer.
2. Import restrictions: tariffs, quotas, import bans.
3. Exchange control – rationing of foreign exchange.
4. Export promotion: subsidies, incentives, diversification of exports.
5. Deflationary monetary and fiscal policies to reduce demand for imports.
6. Import substitution industrialisation.
7. Borrowing from the IMF or other sources / using reserves (short-term).
8. Attracting foreign investment and tourism; reducing invisible payments.
9. Debt rescheduling.

Explain how each measure reduces the deficit.