WAEC Economics 2009 past questions and answers

Economics exists because resources are scarce compared with human wants.

Opportunity cost, the alternative given up, is also called real cost.

Because resources are scarce, people must choose which wants to satisfy.

When machines and new methods replace workers, the change in the structure of production causes structural (technological) unemployment.

In a market economy capital is privately owned; public ownership belongs to a planned economy.

Capitalism allocates resources through prices determined by demand and supply.

Private ownership of resources is the basic feature of capitalism.

In a socialist (command) economy a central planning authority makes production decisions.

Private businesses are set up mainly to make as much profit as possible.

At equilibrium 20 − 2p = 6p − 12, so 8p = 32 and p = 4 Naira.

A torchlight and its battery are used together, so their demand is complementary (joint).

Demand that rises with price goes against the law of demand, so it is exceptional (abnormal) demand.

The goods compete for the same resources: when one becomes less profitable, resources shift to the other.

A coefficient between 0 and 1 means supply is inelastic.

Demand and income move in the same direction, so income elasticity is positive (a normal good).

The wage is the price of labour, set where demand for and supply of labour meet.

A maximum price below equilibrium keeps goods affordable for consumers.

For one good, the consumer is in equilibrium when the marginal utility equals the price.

The MP curve cuts the AP curve at the highest point of AP.

The wholesaler buys in bulk from producers and sells in smaller quantities to retailers.

Petroleum production needs very expensive machinery and equipment compared with labour.

A point inside the curve means some resources are unemployed or wasted.

Good tools and equipment raise the output of each worker.

Short-run AC first falls and then rises because of first increasing then diminishing returns to the variable factor.

A perfect competitor sells every unit at the same market price, so P = AR = MR.

There is only one owner, so decisions are made without disagreement with partners.

A perfect market has many buyers and sellers so no one can affect the price.

In a perfect market identical goods sell at one uniform price.

Young people in higher education are not in the labour force, so the current labour force becomes smaller.

Density = population ÷ area = 100 million ÷ 50 = 2 million people per square kilometre.

Manufacturing changes raw materials into new forms (secondary production).

Disposable income is what is left to spend or save after paying tax.

GNP = GDP + factor receipts − factor payments = 100,000 + 25,000 − 20,000 = $105,000.

National income = GNP − depreciation = 105,000 − 40,000 = $65,000.

NDP = GDP − depreciation = 100,000 − 40,000 = $60,000.

Mortgage banks give long-term loans for buying and building houses.

Buying and selling government securities in the open market is open market operations.

Commercial banks keep accounts with and borrow from the central bank, the bankers' bank.

Excise duty is levied on goods produced inside the country.

Roads and bridges are long-lasting assets, so spending on them is capital expenditure.

Fiscal policy uses government taxation and spending to influence the economy.

Planning is needed to use scarce resources where they are most needed.

A developing economy can produce more goods and services: its productive capacity grows.

Terms of trade measure how many imports a unit of exports can buy.

If import prices rise faster than export prices, each unit of exports buys fewer imports.

Tourists' spending pays for services, so it is an invisible export of the host country.

A cartel restricts output by giving each member a quota, to keep prices high.

OPEC was founded in Baghdad in 1960 by Iran, Iraq, Kuwait, Saudi Arabia and Venezuela.

The AfDB was set up with its headquarters in Abidjan, Côte d'Ivoire.

(a) Natural growth rate = birth rate − death rate
L = 45 − 32 = 13; P = 39 − 12.50 = 26.50; Q = 26 − 22 = 4; R = 22.50 + 4.50 = 27; S = 26.50 − 22.50 = 4; T = 20.50 − 3.00 = 17.50
(b) Years on the horizontal axis, natural growth rate on the vertical axis; bars of equal width and equal gaps with heights 13, 12.5, 4, 4.5, 4 and 3; title and scale.
(c) Any three: age at marriage (early or late); use of family planning and contraceptives; level of education, especially of women; religious and cultural beliefs; improved health care for mothers; economic conditions and cost of raising children; government population policy; proportion of women of child-bearing age; urbanisation.

Use birth rate − death rate = natural growth rate and rearrange for the unknown.

(a)(i) Total = 900 ($00) = $90,000; mean = 900 ÷ 20 = 45, i.e. $4,500
(ii) 40 occurs most often (6 times): mode = $4,000
(iii) Arranged in order, the 10th and 11th values are both 40: median = $4,000
(b) Range = 80 − 20 = 60, i.e. $6,000
(c)(i) 7% × $90,000 = $6,300
(ii) Households earning $4,000 and above: 6 × 40 + 2 × 50 + 2 × 60 + 2 × 70 + 2 × 80 = 760 ($00) = $76,000; 15% × $76,000 = $11,400

Remember the figures are in hundreds of dollars.

(a) Human wants are unlimited while the resources to satisfy them are limited; so every individual, firm and government must choose, and every choice has an opportunity cost. All economic problems (what, how, for whom to produce) arise from scarcity.
(b)(i) Science: it uses scientific methods – observation, collecting data, forming and testing hypotheses, and stating laws (e.g. law of demand).
(ii) Social science: it studies human behaviour in society, which cannot be controlled in a laboratory, so its laws are less exact.
(c) Any of: setting priorities through a scale of preference and development plans; efficient use and allocation of resources; price control and rationing; encouraging production (subsidies, investment); importing goods in short supply; population control; developing new resources and technology.

Scarcity means wants exceed resources, so choice is unavoidable.

(a) Manufacturer → wholesaler → retailer → consumer (shorter chains may skip the wholesaler or retailer).
(b)(i) Wholesaler: buys in bulk from producers and breaks bulk; stores goods (warehousing); gives credit to retailers; finances producers by paying in advance; transports goods; grades and packages; gives market information to producers; stabilises prices.
(ii) Retailer: sells in small quantities to consumers; stocks a variety of goods; gives credit and after-sales services; delivers goods; advises consumers; gives information to wholesalers and producers about consumer tastes; sells at convenient locations.

Give at least three functions for each middleman.

(a) Labour is the human effort, mental and physical, used in the production of goods and services in return for wages.
(b) Any four: level of education and training; health and nutrition of workers; working conditions; wages and incentives; quality of tools and machines; quality of management; climate; job security; motivation and morale.

Efficiency means output per worker.

(a) A direct tax is imposed on the income or property of persons and companies and is paid directly to government by the person who bears it, e.g. personal income tax, company tax. An indirect tax is imposed on goods and services and its burden can be shifted to consumers through higher prices, e.g. VAT, import and excise duties.
(b) Any four: tax evasion and avoidance; corruption of tax officials; inadequate records of incomes, especially in the informal sector; illiteracy and ignorance of taxpayers; shortage of trained tax staff; poor transport and communication; smuggling; low incomes; political interference; complex tax laws.

Direct tax: burden cannot be shifted; indirect tax: it can.

(a)(i) Fixed cost does not change with output (e.g. rent); variable cost changes with output (e.g. raw materials).
(ii) Real cost is the alternative forgone (opportunity cost); money cost is the amount of money spent on factors of production.
(iii) Implicit cost is the cost of the owner's own resources used in the business, for which no money is paid (e.g. own labour, own building); explicit cost is the actual money payment to outsiders for factors (e.g. wages, rent).
(b)(i) In the short run, continue producing as long as price covers average variable cost; if price is below average variable cost (or the loss persists in the long run), shut down/leave the industry.
(ii) In the short run fixed costs must be paid anyway, so producing while price ≥ AVC reduces the loss; if price < AVC, producing only adds to the loss.

The shut-down point is where price equals minimum average variable cost.

(a) A capital market is the market for medium- and long-term funds, where long-term securities are issued and traded, e.g. through the stock exchange, issuing houses, development banks and insurance companies.
(b) Any three: shares (ordinary and preference) – part ownership of a company; debentures – long-term loans to companies with fixed interest; government development stocks/bonds – long-term government borrowing; mortgages – long-term loans secured on property; industrial loans; unit trusts.

Instruments are the long-term securities traded in the market.

(a)(i) Devaluation: a deliberate official reduction by government of the value of its currency in terms of other currencies (under a fixed exchange rate).
(ii) Depreciation: a fall in the value of a currency caused by market forces of demand and supply (under a floating exchange rate).
(b) Any three: devaluation; import restrictions (tariffs, quotas, bans); export promotion (subsidies, incentives); exchange control; deflationary monetary and fiscal policy; foreign borrowing/use of reserves; import substitution; encouraging foreign investment.

Devaluation is a government decision; depreciation is market-driven.

(a)(i) Minimum price above equilibrium: quantity supplied exceeds quantity demanded, giving a surplus (glut); government may buy up the surplus; diagram shows the price line above P_e with Qd < Qs.
(ii) Maximum price below equilibrium: quantity demanded exceeds quantity supplied, giving a shortage; leads to queues, rationing, hoarding and black markets; diagram shows the price line below P_e with Qd > Qs.
(b)(i) Abnormal demand is when more of a commodity is bought as its price rises (or less as it falls), contrary to the law of demand; the demand curve slopes upward.
(ii) Any two: Giffen goods; goods of ostentation/prestige (Veblen goods); expectation of further price rise; ignorance (price taken as a sign of quality); emergencies/scarcity; habit-forming goods.

Diagrams must show demand, supply, equilibrium and the fixed price with the gap labelled.

Any five: promote trade among member states by removing tariffs and quotas; free movement of persons, goods, services and capital; establish a common external tariff (customs union); harmonise agricultural, industrial and monetary policies; develop joint infrastructure such as roads and telecommunications; promote economic development and raise living standards; establish a single currency; promote peace and stability in the region; reduce dependence on outside countries.

Each objective should be explained, not just listed.

Any five: to stabilise oil prices and avoid harmful fluctuations; to secure steady income for member countries; to regulate output through quotas; to co-ordinate members' petroleum policies; to protect members against exploitation by oil companies and consumer countries; to secure regular supply to consumers; to give members bargaining power; to provide aid through the OPEC Fund; to promote technology transfer and training in the oil industry.

OPEC continues because members still gain from co-operation.