WAEC Economics 2008 past questions and answers

Economics studies how limited resources are allocated among competing wants.

Land, labour, capital and entrepreneurship are productive resources, also called factors of production.

Consumption is using up goods; it is the end of production, not part of it.

Each additional unit consumed adds less satisfaction than the one before.

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

Jointly demanded goods are used together; if P becomes dearer, less P is bought and so less Q is needed.

Above equilibrium price, quantity supplied exceeds quantity demanded: excess supply.

Prices signal where resources are most wanted, so the price mechanism allocates resources.

Emergencies such as wars and disasters happen unexpectedly, so their effect on supply cannot be foreseen.

A coefficient greater than 1 means demand is elastic.

Small firms deal closely with their customers and can give personal attention.

The long run is long enough to change the quantity of every factor, so all are variable.

The slope of the production possibility (transformation) curve shows how much of one good is given up to produce more of the other.

Rent must be paid whatever the level of output, so it is a fixed cost; the others vary with output.

Total revenue = price × quantity sold.

A public limited company invites the general public to buy its shares; it is privately owned.

Ordinary shareholders bear the most risk, receive dividends that vary with profit, and can vote.

A monopolist faces a downward-sloping demand curve, so it can fix either the price or the quantity, but not both.

Many firms with differentiated (branded) products is monopolistic competition.

If price cannot cover average variable cost, producing loses more than stopping, so the firm shuts down.

At an auction buyers bid against each other and the highest bid wins.

Population size changes through births, deaths and migration; unemployment does not directly change it.

Unions bargain collectively to push wages up; they replace competitive wage setting rather than achieve it.

Employers hire labour according to the extra output each worker adds, so the demand curve is the marginal (revenue) product curve.

Most of the working population in West African countries is employed in agriculture.

Specialisation lets each worker or country concentrate on what it does best, raising output.

An industry is a group of firms making the same or similar products.

Large firms lose personal contact with workers and customers; the others are advantages.

National income is measured by the output, income or expenditure approach.

GDP = consumption + investment + government purchases = 500 + 150 + 300 = $950 m.

Net capital formation = gross investment − depreciation = 150 − 25 = $125 m.

Money is anything generally accepted as a medium of exchange.

Money is wanted for the goods it buys, so its demand is derived from the demand for those goods.

Money supply is currency (notes and coins) plus bank deposits.

The value of money is its purchasing power, which is measured against the general price level.

By selling securities in open market operations, the central bank takes cash from banks and reduces their lending.

When banks lend, they create new deposits, which are money.

Public finance studies how government raises revenue and how it spends it.

A specific tax is a fixed amount per unit (e.g. N10 per litre), unlike an ad valorem tax based on value.

Rich and poor pay the same indirect tax on a good, so it takes a larger share of a poor person's income.

Petrol is used in transport and production across the economy, so a tax on it raises costs and prices everywhere.

Development brings better living standards, including education and a high literacy level.

International trade lets a country consume goods it cannot produce well itself.

A surplus means receipts from exports and other inflows are greater than payments for imports.

The ECA is one of the United Nations' regional commissions.

(a) Qd = 21 − 3p: p = 0 → 21; 1 → 18; 3 → 12; 4 → 9; 5 → 6; 6 → 3 kg
(b) Price on the vertical axis, quantity on the horizontal axis; plot (21, 0), (18, 1), (12, 3), (9, 4), (6, 5), (3, 6) and join: a downward-sloping straight line labelled DD, with a title and scale.
(c) Any three: price of the commodity; income of consumers; prices of related goods (substitutes and complements); tastes and fashion; size of population; expectations of future price changes; advertising; government policy (taxes, subsidies); season/weather.

Substitute each price into the function; the curve slopes downwards.

(a) Total = $18,000 million. Angle = amount ÷ 18,000 × 360°
Education 6,250 → 125°; Mining 2,150 → 43°; Agriculture 4,300 → 86°; Communications 2,400 → 48°; Health 2,900 → 58° (total 360°)
Draw a circle, mark the sectors with a protractor, label each and give the chart a title.
(b) A budget surplus is when planned government revenue is greater than planned expenditure; a budget deficit is when planned expenditure is greater than planned revenue.

Check that the angles add up to 360°.

Any five: heavy burden on the working population; low savings and investment; low standard of living; high government spending on education, health and welfare; reduced labour supply and output; low per capita income; pressure on social amenities; slow economic growth; higher taxes on workers.

Dependency ratio is the number of dependants (young and old) for each worker.

(a) Internal economies of scale are the cost advantages (lower average cost) that a single firm enjoys from its own expansion, independent of other firms.
(b) Any four: technical economies (better machines, division of labour); managerial economies (specialist managers); financial economies (easier, cheaper loans); marketing/commercial economies (bulk buying and selling, cheaper advertising per unit); risk-bearing economies (diversification); research and development economies; welfare economies.

Each economy should explain how average cost falls as the firm grows.

(a) Supply is the quantity of a commodity that producers are willing and able to offer for sale at a given price at a particular time.
(b) Any five: price of the commodity; cost of production (prices of factors); technology; prices of other (related) commodities; government policy (taxes, subsidies); number of producers; weather and natural factors; goals of the firm; expectations of future prices; transport and storage facilities.

Say how each factor raises or lowers supply.

(a) Limited liability means that the owners (shareholders) of a business are responsible for its debts only up to the amount they invested; their private property cannot be taken to pay the firm's debts.
(b) Any four: inefficiency and poor management; political interference; corruption and embezzlement; inadequate funding; over-staffing; lack of profit motive leading to losses; poor maintenance of facilities; bureaucracy and delays; appointment of unqualified staff.

Explain each problem and its effect on the corporation's performance.

Any four: to improve efficiency of the enterprises; to reduce the financial burden of subsidies on government; to raise revenue from the sale of enterprises; to reduce political interference and corruption; to attract foreign investment and technology; to widen share ownership; to encourage competition and better services; conditions of IMF/World Bank (structural adjustment).

Privatisation is the sale of government enterprises to private owners.

(a) A market is any arrangement by which buyers and sellers come into contact to exchange goods and services at agreed prices; it need not be a physical place.
(b) Large number of buyers and sellers; homogeneous (identical) products; free entry and exit; perfect knowledge of the market; perfect mobility of factors; no transport costs; firms are price takers (one uniform price); no government interference.

A market need not be a place; any contact for exchange will do.

(a) Profit is the excess of total revenue over total cost (Profit = TR − TC).
(b)(i) Total revenue: total money received from sales; TR = P × Q.
(ii) Average revenue: revenue per unit sold; AR = TR/Q (equal to price).
(iii) Marginal revenue: addition to total revenue from selling one more unit; MR = TR_n − TR_n−1 = ΔTR/ΔQ.
(iv) Average fixed cost: fixed cost per unit of output; AFC = TFC/Q (falls as output rises).

Each definition must have its formula.

(a) Subsistence farming: production mainly to feed the farmer's family, with little or nothing for sale.
(b) Co-operative agriculture: farmers pool their land, money and labour, share equipment and market produce together, sharing the benefits.
(c) Plantation agriculture: large estates growing one cash crop (e.g. rubber, oil palm, cocoa) with much capital and hired labour, mainly for export or industry.
(d) Mechanized agriculture: use of machines such as tractors and harvesters instead of manual labour, usually on large farms.
(e) Peasant farming: small-scale farming on scattered small plots with simple tools and family labour, partly for food and partly for sale.

Give the main feature of each system in a sentence or two.

(a) A cheque is a written order by a current-account holder directing the bank to pay a stated sum; it is not legal tender and may be refused. A bank note is paper money issued by the central bank; it is legal tender and must be accepted in payment.
(b) Double coincidence of wants; difficulty of valuing goods (no common measure); indivisibility of some goods; difficulty of storing wealth (perishability); no standard for deferred payment; difficulty of transporting goods.

Barter is the direct exchange of goods for goods.

(a) Public recurrent expenditure is government spending on items that occur regularly every year, e.g. salaries, maintenance, interest on debt and running costs.
(b) Any five: population growth; expansion of social services (education, health); defence and security needs; inflation; debt servicing; provision of infrastructure; creation of new states/local governments; subsidies to public enterprises; corruption and wastage; increase in salaries and wages.

Recurrent spending is regular running cost, unlike capital spending.