WAEC Economics 2003 past questions and answers

Economics studies human behaviour in society, so it is a social science.

The decision-makers in any economy are households (individuals), firms and the government.

Taking up more space than an equation is a drawback, not an advantage, of tables.

Using scarce resources efficiently gets the most output from them, which eases scarcity.

Labour earns wages; land earns rent, capital interest and the entrepreneur profit.

Capital is man-made wealth (machines, tools, buildings) used to produce more goods.

The entrepreneur's distinctive function is bearing the uninsurable risks of the business.

Mass production is worthwhile only if there is a large market to buy the output.

When each worker repeats one small task, products come out identical (standardised), while all-round craftsmanship is lost.

When an industry is concentrated in one area, subsidiary firms grow up to supply it with parts and services.

Marginal utility is the extra satisfaction from one more unit consumed.

With output on the vertical axis and labour on the horizontal, the highest curve, which rises to a peak and then falls, is total product; Y and Z are average and marginal product.

TP stops rising when the extra unit adds nothing, so MP = 0 at maximum TP.

MC = change in total cost when output rises by one unit.

An upward-sloping supply curve means quantity supplied falls as price falls (and rises as price rises).

MR = TR at 4 − TR at 3 = 61 − 56 = N5.

Underpopulation means too few people to make full use of the available resources.

Early marriage lengthens the child-bearing period, raising the birth rate.

Labour efficiency is measured as output per worker or per hour, i.e. the ratio of output to input.

Small firms lack capital, so government loans and tax relief help them survive.

Quantity demanded rises as price falls, so the demand curve slopes downward from left to right.

Elasticity of supply measures how quantity supplied responds to a change in the good's own price.

Sole proprietorships (petty traders, artisans, farmers) are by far the most numerous businesses.

Co-operative societies are a form of business ownership, like sole proprietorships and companies.

One owner controls and supervises the business, so decisions are quick.

Ordinary shareholders get a dividend that varies with profit; preference shares carry a fixed rate.

Farmers rely on crude implements like hoes and cutlasses, which keep output low.

Good transport moves goods quickly and cheaply from producers to consumers.

Money is wanted not for itself but for what it can buy, so its demand is derived.

During inflation money loses purchasing power, so holding it is a poor way to store value.

Deflation is a persistent fall in the general price level.

As the bankers' bank and lender of last resort, the central bank lends to commercial banks.

Higher wages raise production costs, and firms pass them on as higher prices: cost-push inflation.

Merchant banks mainly provide medium- and long-term finance to businesses.

The precautionary motive is one of Keynes' reasons for holding (demanding) money.

Invisible trade covers services such as shipping, banking, insurance and tourism.

Excess demand for foreign currency raises its price, so the domestic currency loses value (depreciates).

Investment flows are capital movements; machinery imports, insurance and transport are current account items.

The main purpose of taxation is to raise revenue to finance government spending.

Personal income tax is paid directly by the person who earns the income.

A progressive tax takes a higher percentage as income rises.

Education and health are social services.

Government can cover a deficit by creating new money (or borrowing); the other options widen it.

Members produce similar primary goods and trade more with Europe than with one another, so intra-regional trade is weak.

Under socialism, the state owns and controls the means of production.

National income figures show how well the whole economy is performing and growing.

(a) Table with a title and headings, e.g.
Item | Million
Population 1970 | 60
Births 1971–75 | 25
Deaths 1971–75 | 3
Immigrants 1971–75 | 8
Emigrants 1971–75 | 4
Population 1975 | 86
(b)(i) Net migration = immigrants − emigrants = 8 − 4 = +4 million.
(ii) Population 1975 = 60 + (25 − 3) + 4 = 86 million.
(c) Increase = 86 − 60 = 26 million; 26/60 × 100 = 43.33%.

Natural increase is births minus deaths; add net migration.

(a)(i) Jawara: A = 1,500/15,000 × 100 = 10%; B = 1,200/15,000 × 100 = 8%.
(ii) Audu: A = 6,000/60,000 × 100 = 10%; B = 3,000/60,000 × 100 = 5%.
(iii) Ade, B = 2,000/25,000 × 100 = 8%.
(iv) Eke, B = 2,240/32,000 × 100 = 7%.
(b)(i) Column A: proportional tax (same 10% rate for all). Column B: regressive tax (rate falls from 8% to 5% as income rises).
(ii) Audu (lowest rate, 5%).
(c)(i) Total income = 15,000 + 25,000 + 32,000 + 60,000 = N132,000; 15% of it = N19,800.
(ii) Disposable income = 85% of income: Jawara N12,750; Ade N21,250; Eke N27,200; Audu N51,000.

Tax rate = tax paid ÷ income × 100.

(a) A scale of preference lists wants in order of importance. It helps the consumer/firm/government to choose rationally with limited means, satisfy the most pressing wants first, avoid waste, get maximum satisfaction and plan spending; it shows the opportunity cost of each choice.
(b) Opportunity cost is the next best alternative given up (forgone) when a choice is made. Because resources are scarce, choosing one thing means doing without another; it is real cost, not money cost.
(c)(i) The pair of shoes forgone.
(ii) The maize (worth N25,000) that could have been grown.

Opportunity cost is the alternative forgone, not the money spent.

To know the size of the population and its growth rate.
To know the age and sex distribution, and so the size of the labour force and dependants.
To know the geographical distribution for siting of amenities (schools, hospitals, roads).
To know the occupational distribution.
For economic planning and budgeting.
To calculate per capita income and standard of living.
For sharing of revenue and political representation (constituencies).
To plan for future needs such as food, housing and jobs.

Each reason should show how the information is used.

(a) Price elasticity of demand is the degree of responsiveness of quantity demanded of a commodity to a change in its own price: PED = % change in quantity demanded ÷ % change in price.
(b) Each diagram with price on the vertical axis and quantity on the horizontal axis:
(i) Perfectly inelastic (PED = 0): vertical demand curve; quantity is the same at all prices.
(ii) Unitary elastic (PED = 1): rectangular hyperbola; a price change causes an equal proportional change in quantity, so total spending is constant.
(iii) Fairly elastic (PED > 1): a gently sloping (flat) demand curve; a small price change causes a larger proportional change in quantity.
(iv) Perfectly elastic (PED = ∞): horizontal demand curve; buyers take any amount at one price and nothing above it.

Label axes, curves and the price/quantity changes on each diagram.

(a) Nationalisation: government takes over ownership and control of privately owned enterprises, usually with compensation.
(b) Commercialisation: government-owned enterprises are reorganised to run on commercial (profit-making) lines and become self-financing, without selling them.
(c) Privatisation: transfer of ownership of government enterprises (wholly or partly) to private individuals and firms, e.g. by sale of shares.
(d) Indigenisation: government policy transferring ownership and control of businesses from foreigners to citizens.
(e) Joint venture: a business owned jointly by two or more parties, e.g. government and a foreign firm, sharing capital, risks and profit (e.g. NNPC and oil companies).

Any four, each defined with an example.

(a) Demand-pull inflation is caused by aggregate demand exceeding aggregate supply ('too much money chasing too few goods'), e.g. through increased government spending or credit expansion. Cost-push inflation is caused by rising costs of production (higher wages, raw material and fuel prices, import costs, taxes) which producers pass on as higher prices.
(b) Any four: Monetary policy: raise bank rate, sell securities in open market operations, raise reserve requirements to cut money supply.
Fiscal policy: cut government expenditure and raise taxes (surplus budget).
Increase production of goods and services.
Price control and wage restraint (prices and incomes policy).
Liberalise imports to increase supply.
Reduce costs of production, e.g. subsidies on inputs.

Show cause in (a) and how each measure reduces demand or increases supply in (b).

(a) Unemployment is a situation in which people who are able and willing to work at the current wage rate cannot find jobs.
(b) Loss of output, so national income is lower than it could be.
Low standard of living and poverty.
Increase in crime and social vices.
Waste of human resources and skills.
Loss of government revenue from income tax and increased welfare spending.
Rural-urban migration and brain drain.
Fall in aggregate demand, which worsens recession.
Political instability and unrest.
Increased dependency burden.

Explain at least five effects.

(a) Savings account: meant for small savers; operated with a passbook or card; earns interest; withdrawals limited in number; cheques not issued; encourages saving.
(b) Current account: operated with cheque books; money withdrawable on demand; usually no interest paid and the bank charges fees; holders can get overdrafts; used mainly by businesses and organisations for payments.
(c) Fixed (time) deposit account: money deposited for a fixed period (e.g. 30, 90 days); earns higher interest than savings; cannot be withdrawn before maturity without notice or loss of interest; used for idle funds.

For each account give its main features and who uses it.

Foreign trade crosses national boundaries; domestic trade takes place within one country.
Foreign trade involves different currencies and foreign exchange; domestic trade uses one currency.
Foreign trade faces tariffs, quotas, embargoes and exchange controls; domestic trade does not.
Different weights, measures, laws and customs in foreign trade.
Language and cultural differences in foreign trade.
Foreign trade involves longer distances, higher transport and insurance costs and more risk.
Foreign trade requires more documents (bills of lading, import licences, certificates of origin).
Factors of production move less freely between countries.

Set out each difference point against point.

(a) Economic integration is the coming together of countries, usually in a region, to remove trade barriers and co-ordinate economic policies for mutual benefit, e.g. ECOWAS.
(b) Any four: Uneven development among members and fear of domination by bigger economies (e.g. Nigeria).
Differences in currencies and monetary/fiscal policies.
Political instability and differences in ideology.
Loyalty to former colonial powers (Anglophone/Francophone divide).
Poor transport and communication links.
Members produce similar primary goods, so little to trade with one another.
Reluctance to give up sovereignty and customs revenue.
Language barriers.
Inadequate funding of the community.

Define then list four problems with short explanations.

(a) Economic planning is a deliberate effort by government to set economic targets for a given period and to direct the allocation of resources to achieve them, e.g. a development plan.
(b) Inadequate capital/finance.
Inadequate and unreliable statistical data.
Shortage of skilled manpower and experts.
Political instability and frequent changes of government.
Corruption, nepotism and mismanagement.
Over-dependence on foreign aid and fluctuating export earnings.
Unrealistic targets and wrong priorities.
Rapid population growth.
Inflation raising project costs.
Poor implementation and lack of monitoring.

Several clear problems, each briefly explained.